Monday, November 12, 2012

Run Fraser Run!

F&N is more than 100 years old. Usually for a company this age, it's nice to be able to have an occasional walk, sometimes jog while still continue to maintain that level of comfort as well as fitness. For a while, F&N has been enjoying such. As I have mentioned in earlier article, watch out for its deterioration as well as the increase in competition.

Its results for the last financial year has shown signs that it is gearing itself to be fit enough to run. It has moved its dairy operations to Pulau Indah. The Seksyen 13 land is to be turned into a mixed development project. Hence, I can say that it has tried very hard to be what it is over the last many years.

That poor 4th quarter results is being cushioned with announcement of its planned RM1.65 billion project. As it seems to be so, I think the job for F&N for now is trying to reduce the negative results that are to be seen in its food and beverage business in years to come.

At the moment, the concentration for F&N is to increase market share using brands like 100Plus, Seasons, new cola drink - MyCola etc to fend off competition. While I am allright with companies like Top Glove, NTPM in using reducing margin or aggressive pricing strategy to kill off competition, the competitors that F&N is trying to beat - Coca-cola and Pepsi - will never be killed. The more you try, the harder they will come to hit you. That's the biggest problem facing F&N because these 2 larger players are global giants while F&N is fighting it as a local champion.

Seeing F&N is like sending our best Malaysian (or Singaporean) Muay Thai exponent to Thailand to compete where Thailand will forever produces many quality exponents while once a while Malaysia will try to produce our local best whom can be exceptional.

As can be seen below, despite garnering better revenue (except due to the impact from Thailand's flood) from its existing lines of business, the margin will continue to be thinning. This is because a 500 pound gorilla in Coke is also using a similar strategy to build market share.

To top it off, its dairy business is not performing as well either except for some one-off recognition as below. As opposed to companies like Dutch Lady and Nestle, its lines of products from the dairy business like the evaporated and condensed milk is not as wanting. F&N does have Magnolia but the brand again is a tougher one to pull off as compared to the "Nestle and Dutch Lady".

Frankly, although F&N will continue to be profitable, I think next few years ahead will be challenging for F&N as it is trying to introduce new lines of successful products while some other F&N competitors with less new challenges will have it easier.

As the saying goes in investments, "Never try to attempt to scale the height of a five foot pole. Look out for those that you can just walk over." At the moment, some of the challenges that F&N has are 3 to 5 feet high.


Winnfield said...

Interesting to note that despite the not so rosy earnings prospect, Fraser is still trading at a rich valuation

felicity said...

There is a possibility of trading hope that Coke may buy F&N's beverage operations as in the purchase of Heineken for the beer business.