F&N Riding the Heatwave

According to data from the World Meteorological Organization, temperatures in parts of Southeast Asia have soared to a high of more than 30 degrees, far higher than the average in February this year. Among them, there are countries such as Vietnam that issued a state of emergency due to the heatwave, and China's sensed temperature once reached 44 degrees Celsius. At the same time, many states such as Perlis, Kedah, Kelantan, Sarawak, and Sabah have issued heatwave warnings.

Based on this, MIDF Investment Bank research analysts believe that in order to cope with extreme weather, water supplementation is essential. For this reason, consumers may find fresh and convenient ways to stay hydrated and cool, thereby increasing demand for ready-to-drink drinks and outdoor drinks.

“We expect Star Lion Group to be a major beneficiary of the heatwave across Southeast Asia as the company has strong market leadership in the restaurant sector.”

According to retail data services, Star Lion Group has a leading position in ready-to-drink tea, carbonated drinks, evaporated milk and sweetened condensed milk in Malaysia, and is also recognized as the number one brand for condensed milk, evaporated milk and milk in Thailand.

Looking ahead, analysts expect the company's revenue to rise in the second and third quarters of this year, mainly due to an increase in demand. At the same time, this is not limited to countries such as Malaysia and Thailand, but is distributed through exports to different Southeast Asian countries to withstand the hot weather.

According to information, the El Niño phenomenon will continue until mid-May this year, and then turn into a La Niña phenomenon.

Analysts are optimistic about Star Lion Group's integrated dairy farm in Golden Mas Negeri Sembilan, as this initiative will enable the company to become self-sufficient while reducing operating costs.

According to the guidelines given by the company, it is expected that the first milking will be carried out in 2025, while aiming to produce 100 million liters.

Furthermore, if all stages are completed, it is estimated that it will be possible to produce 200 million litres of fresh milk, which will help promote the company's greater ability to cater to local and international markets, thereby expanding business revenue.

Meanwhile, there is insufficient supply in the fresh milk market in Malaysia. The fresh milk self-sufficiency rate in 2022 only increased to 57.3% year on year, which is still a long way from achieving the 100% self-sufficiency rate set by the government in 2025.

As of March 1st, the prices of popular commodities such as raw sugar, skimmed milk powder, tin, and palm oil for 3 months were all below the two-year peak.

Analysts said that given lower global mass commodity prices, this indicates that raw material costs may fall in the future, while the company's material costs may return to normal levels in FY2022.

However, analysts pointed out that it is still impossible to ignore global shipping disruptions or detours, which may cause delays in receiving goods.

Overall, analysts raised Star Lion Group's net profit forecast for the current and future fiscal years, increasing by 5.2%, 3.8%, and 2.6%, respectively.

“Based on the above, we continue to maintain our 'buy' rating, and our target price was raised from RM33.50 to RM37.”

“Star Lion Group's stock price is currently at an attractive stage. Compared with the 3-year historical average capital-to-profit ratio, which is 22.6 times, it is currently only 18.9 times, and the weekly interest rate for the 2024 fiscal year is as high as 2.5%.”

Perhaps driven by news such as falling commodity prices and Star Lion Group plans to invest about RM179.5 million to set up a new plant in Cambodia, it has boosted the company's stock price by nearly 14% since the beginning of the year.

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-Source: Nanyang Siang Pau, Bursa Malaysia