Farm Fresh: Milk producer 'still very profitable' despite margin compression

KUALA LUMPUR (Sept 1): Farm Fresh Bhd said on Thursday (Sept 1) the milk producer is “still very profitable” with a gross profit margin at above 26% despite contending with profit compression of about 3% due to costlier grain, which is used to make animal feed, at a time when fuel and transportation have become more expensive.

According to Farm Fresh group managing director and group chief executive officer Loi Tuan Ee, the company will not solely rely on continuous price hikes as a mitigation strategy while it is still profit-making, as its market share stays strong.

“Our [profit] margin is still compressed [by] 2% to 3%. This is unavoidable but we are still very profitable, just making less [profit],” Loi told The Edge after the launch of the Farm Fresh-Jaya Grocer collaboration under which Farm Fresh has set up its first fresh milk dispenser machine at the Jaya Grocer outlet within 163 Retail Park along Jalan Kiara here.

He said Farm Fresh hopes the costs of grain, animal feed, diesel and freight will be reduced in 2023 to improve Farm Fresh’s profit margin.

Farm Fresh has substantial Malaysian market share in the fresh milk and liquid product categories.

Loi said that under the fresh milk category, Farm Fresh has a market share of 51% in Malaysia.

For the overall liquid product category, he said Farm Fresh holds a 23% market share in the country.

Farm Fresh had last week reported a lower quarterly net profit compared to a year earlier and the preceding quarter despite revenue growth.

On Aug 24, Farm Fresh said in a Bursa Malaysia filing that net profit dropped to RM15.24 million in the first quarter ended June 30, 2022 (1QFY23) from RM19.21 million a year earlier, dragged down by expenses related to the group’s Employees’ Share Option Scheme (ESOS) and lower tax credit.

Farm Fresh said given the long-term nature of the headwinds it faced and to counter higher input prices, the group has increased the prices of its chilled ready-to-drink (RTD) products in Malaysia by an average of 5% effective mid-July 2022, and increased prices for its chilled RTD products in Singapore by an average of 10% effective Aug 1.

At Thursday’s event here, Loi said Farm Fresh plans to set up another 10 similar fresh milk dispenser machines across Malaysia by end of 2022.

Known as the “Milk on Tap” initiative, he said consumers can make a one-time purchase of a one-litre Farm Fresh glass bottle for RM3 and return the bottle at their next purchase in exchange for a newly filled bottle of fresh milk for RM7.90.

At market close, Farm Fresh’s share price fell two sen or 1.2% to RM1.62 for a market value of about RM3 billion.