Published on 17 Jul 2020.
RAM Ratings has reaffirmed the respective AA1(s)/Stable and P1(s) ratings of F&N Capital Sdn Bhd’s RM750 mil MTN Programme (2013/2028) and RM750 mil CP Programme (2013/2020). The debt facilities are backed by full, unconditional and irrevocable corporate guarantees from F&N Capital’s parent, Fraser & Neave Holdings Bhd (F&N Holdings or the Group). As such, the ratings reflect the credit profile of the Group.
The reaffirmation of the ratings is anchored by the strong operational and financial performance of F&N Holdings. The Group’s credit metrics are expected to remain comfortably within its rating threshold despite near-term weakness arising from the COVID-19 pandemic.
Given its consumer-centric business, the economic downturn amid the movement control order (MCO) and the COVID-19 outbreak will affect consumption and, in turn, the Group’s sales and earnings. There was limited impact from the MCO in 1H FY Sep 2020 as it was only imposed on 18 March 2020. Revenue and operating profit before depreciation, interest and tax (OPBDIT) increased a respective 4.0% and 4.7% y-o-y. That said, we expect F&N Holdings’ operations to face more pressure in 2H FY Sep 2020 due to the more pronounced effects of the MCO then.
Our stressed scenario shows that the Group’s revenue and OPBDIT could decline up to a respective 10% and 15% for the full fiscal year. However, we derive comfort from its strong debt coverage and liquidity position, which will allow it to weather this tough period. Its adjusted funds from operations debt cover (FFODC) are expected to remain robust at above 2 times over the next couple of years, thanks to steadfast operating profit and minimal debt (FY Sep 2019: 3.24 times; 1H FY Sep 2020: 4.47 times). F&N Holdings also retained its net-cash position as at end-March 2020, thus allowing some room for discretionary spending if needed.
F&N Holdings managed to solidify its leadership in isotonic beverages as well as in Thailand’s canned milk market. The ratings are also supported by the Group’s diversified product line-up, with some degree of geographical diversity (via its operations in Malaysia and Thailand, coupled with rising exports). Nonetheless, its ready-to-drink operations depend much on 100Plus, which generates half of this division’s sales volumes and a substantial portion of its profits.
The ratings are moderated by the keen competition that is eroding the shares of the domestic beverage and canned milk markets. The availability of a wide array of products and the continual debut of cheaper offerings renders this industry quite challenging. Given that F&N Holdings’ costs mainly stem from raw materials and packaging, its margins fluctuate in tandem with the volatile prices of these items.
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Ratings on F&N Capital Sdn Bhd