• We begin coverage on Farm Fresh Berhad (FFB) with a BUY  recommendation premised on 1) on its bright prospects driven by  an increase in production volume across its production and  manufacturing facilities, and 2) an increase in take up rate for its  products line including dairy and plant-based products.

• FFB products offerings are ‘inflation and recession proof’  particularly when proteins are part of essential food value chain  from infant-until-adults.

• We see burgeoning demand in the near term thanks to steady  economic recovery post pandemic. The expected rise in  employment and wages will also bode well for FFM products thanks to its competitive pricing and value products.

• We begin coverage on FFB with a BUY recommendation and TP of  RM1.75, pegged at 27.8x PER to FY24F EPS of 6.3 sen.

Rapid expansionary mode for upstream and midstream segments

FFB is planning to boost its operations including expanding its existing  farms, installing additional filling and packaging lines, investing in a new  manufacturing hub, building a farm and integrated processing facility  in East Malaysia, as well as enhancing cross-breeding for high-yielding  cows. This will be a precursor for an improvement in production and  products line, which, in our opinion will enhance its capabilities to meet  surging demand.

Diversified products line offering

We like FFB due to its extensive products offering of dairy and plantbased, which caters to a variety of consumer preferences and dietary  needs. The company is also progressing well and on track to release new product lines which will further enhance consumer loyalty to the  brand.

25% Dividend Payout Policy

FFB has a dividend policy of distributing at least 25% of PAT as dividend  to shareholders. Assuming a dividend payout ratio of 25%, we expect  FFB to declare 1.6 sen/1.7 sen dividend per share for FY24F/FY25F  respectively, translating into 0.5% - 1.1% yield at current price level.

Initiate Coverage with a ‘BUY’ call and TP of RM1.75

We begin coverage on FFB with a BUY recommendation and TP of  RM1.75 a piece. Our TP is based on a slight discount to CY23 PER of  domestic dairy-based companies including Nestle and Dutch Lady Milk or 27.8x, that is pegged to FY24F EPS of 6.3 sen (note FFB year-end:  March). The TP is supported by its bright prospects including  burgeoning demand and normalization in costs consistent with our 2- year earnings CAGR of 51.7% for FY23F to FY25F.

Source: BIMB Securities Research - 28 Nov 2022