KUALA LUMPUR (May 31): The share price of Dairy group Farm Fresh Bhd fell to its record low since listing, down as much as 14.2% in active trading as earnings missed expectations due to higher-than-expected dairy raw material costs.

The counter opened lower at RM1.50 from RM1.55 on Tuesday’s close. It touched the record low of RM1.33 in the evening session — lower than its adjusted March 2022 listing price of RM1.34 per share — before settling at RM1.34, still down 21 sen or 13.55%.

Some 22.91 million shares or 17 times its two-month average of 1.33 million shares were traded. Year to date, the counter is down 16.77%.

Farm Fresh earnings fell 72.4% year-on-year and 74% quarter-on-quarter in the quarter ended March 31, 2023 (4QFY2023) to RM4.9 million, although revenue remained elevated at RM161.36 million from RM128.07 million a year ago.

The high revenue was on the back of positive Ramadhan sales, School Milk Programme sales and sales increase from its lower margin Australian operations, it said.

On a full-year basis, Farm Fresh's net profit rose 71.8% year-on-year in FY2023 to RM50.08 million from RM29.14 million, with revenue more than doubled to RM629.69 million, from RM244.74 million.

Analysts were mixed on the cost pressures moving forward for Farm Fresh.

The latest results prompted Maybank IB Research to downgrade the counter to “hold”, with target price revised lower to RM1.60, from RM1.75.

In a research note on Wednesday, it said the latest results disappointed, with core net profit of RM52 million in FY2023 reflecting just 77% of consensus estimates.

“We cut FY2024 estimated earnings by 21% but leave FY2025 estimates unchanged,” it said.

Maybank added, “1QFY2024 estimated earnings may remain weak as dairy raw material costs are likely to stay elevated given that Farm Fresh has not fully pared down its existing (higher cost) milk inventory levels yet.”

Meanwhile, RHB Research has maintained its “buy” call on the counter albeit with a lower target price of RM1.72, from RM1.75, as it sees “the worst is over” for the dairy group.

“We view the gradual easing of cost pressures, its cost pass-through, and new capacity coming on stream to be the key factors driving its earnings recovery in FY2024 forecast,” it said.

“The group is increasing the selling prices of its chilled products from July onwards, effectively narrowing the gap with competitors, which have already raised their selling prices more aggressively.

“In addition, farmgate milk prices are expected to undergo a moderation in the upcoming season starting July, which will spur its margin recovery significantly, depending on the quantum,” it said.

“Meanwhile, the capacity increase in its existing plant and new Taiping plant will be timely for it to ease production constraints and meet strong market demand — another key earnings driver in FY2024 forecast,” it added.