• Maintain BUY (TP: RM1.80). Farm Fresh’s 9MFY24 net profit was below consensus expectation, accounting for 59%. However, Farm Fresh’s 3QFY24 revenue and net profit spiked by 30.5% YoY and 8.9% YoY driven by robust HORECA and commercial UHT sales, along with the positive impact of new products launched and the revenue contribution from their new subsidiaries, Inside Scoop and Sin Wah Ice Cream. Prospectively, sales are expected to further surge due to the new Consumer Packaged Goods (CPG) ice cream to be rolled out by end of 1HFY24, leveraging on the distribution channel and systems of the newly acquired Sin Wah. We anticipate a gradual increase in demand for Farm Fresh Grow as a result of its marketing initiatives. Pending the revision of earnings forecasts, we are placing the stock recommendation and target price under review.

• Key highlights. In 3QFY23, both revenue and net profit rose by +30.5% YoY and +8.9% YoY respectively. The slight rise in net profit can be attributed to higher finance costs incurred to fund the Group’s expansion, including higher taxes imposed. This increase in expenses is due to the fact that subsidiaries such as Sin Wah and Inside Scoop do not enjoy tax incentives, unlike the group’s own facilities such as the Muadzam Shah and Larkin processing facilities Looking at the QoQ basis, net profit surged by a staggering amount of 59.8% supported by both higher sales from commercial UHT products and positive revenue contribution from Inside Scoop, along with the decrease in cost of dairy raw materials as whole milk powder price calms down.

• Earnings Revision. No changes to our forecast, pending revision.

• Outlook. We maintain a positive outlook on Farm Fresh, driven by strong growth expectations stemming from new product launches and its upcoming regional expansion into the Philippines, scheduled to begin operations in May 2024. This growth will be propelled by the rising popularity of its Farm Fresh Grow powder, along with the introduction of CPG ice cream from the Taiping Plant and Farm Fresh butter. Leveraging the expertise from St David Dairy, Farm Fresh aims to tap into the HORECA and wholesale market segments. However, we remain cautious regarding foreign exchange risks.

Source: BIMB Securities Research - 29 Feb 2024