KUALA LUMPUR (Jan 23): Farm Fresh Bhd is on track to achieve improved quarter-on-quarter (q-o-q) earnings in 3QFY2024, driven by expected reductions in whole milk powder costs and sustained product demand, as outlined by Maybank Investment Bank (Maybank IB) Research.

In a note on Tuesday, the research house highlighted a significant 30% decline in the average selling prices of whole milk powder (WMP) to around US$3,300 (RM15,628) per metric tonne from its peak of US$4,700 per metric tonne in March 2022, foreseen to positively impact Farm Fresh due to anticipated lower WMP costs from the third quarter of fiscal year 2024 onwards.

Maybank IB also underscored Farm Fresh's proactive measures to install additional processing and portion packing lines at its Muadzam Shah, Larkin, and Taiping facilities, aimed at bolstering sales for existing liquid milk and dairy products while meeting the demand for new product launches.

"Meanwhile, the completion of Farm Fresh's new manufacturing hub in Bandar Enstek is expected by the fourth quarter of 2024. Once the pre-planned capacity expansion concludes by the end of fiscal year 2025, its total finished goods annual production capacity (excluding ice creams) could increase by approximately 17% to reach 200.7 million litres," it said.

Maybank IB also acknowledged Farm Fresh's strategic intent to diversify production into other dairy products, including liquid growing-up milk, ice creams and butter, thereby presenting long-term earnings growth opportunities.

Despite Farm Fresh's imminent launch of its inaugural consumer-packaged ice cream product in April 2024, the research house said that the rollout of ice cream variants is expected to be gradual until the operationalisation of the Bandar Enstek manufacturing hub in the estimated fourth quarter of 2024, citing capacity limitations at the Ara Damansara facility.

"Additionally, Farm Fresh is actively working on installing a butter production line at its Taiping facility and plans to introduce butter products for sale in the second half of 2024," it added.

Thus, Maybank IB maintained its earnings forecasts and a "buy" recommendation for Farm Fresh, with an unchanged target price of RM1.65, based on a price earnings ratio of 24 times CY2025E.