Ready to drink (RTD) milk category to grow. Being the largest integrated producer of dairy products made from fresh milk in Malaysia, FFB’s growth is premised on the industry structural growth and market share accretion. Owing to its highly competitive and innovative product offerings, quality and competitive pricing, FFB’s market share of chilled and ambient RTD milk manufactured with fresh milk had grown steadily to 54% (2019: 47%) and 48% (2019: 38%) in 2020 respectively (Figure#1), and management expects it could expand its market share to 75% eventually. On top of the market share accretion, the chilled and ambient RTD milk markets are expected to witness a four-year CAGR of 10% and 8% structural growth.

Despite lingering concerns of margin compression amid rising input cost, FFB is able to cushion the impact via hiking its chilled products price in Malaysia and Singapore effective July and August, respectively. We believe quantum of 5% (Malaysia) and 8% (Singapore) hikes seem sufficient to offset the rising input cost as COGS is estimated to be 5% higher (or 3-4% of Farm Fresh’s ASPs) after factoring the high raw milk ex-farm gate prices and logistic costs.

Tapping into new market. Leveraging its well-established brand and distribution network, FFB will launch its growing-up milk in July, marking its maiden entry into the untapped powdered milk category valued at RM2.3bn (against RTD milk category RM2.1bn). The group is also expanding its regional footprint by allocating RM50m capex to set up processing facilities and distribution networks in Indonesia and the Philippines. These two countries’ RTD milk, Yoghurt and Plant-based RTD milk market size has an expected growth at FY20-25 CAGR of 5.9%-10%, similar to Malaysia market. With the abovementioned growth catalyst, market consensus projects FFB to register a strong FY22-25 PATAMI CAGR of 20.3%, significantly higher than Nestle (6.9%) and Dutch Lady (10.8%).

A new uptrend? After being trapped in the downtrend channel since listing, FFB has staged a downtrend line breakout on 14 July, signalling a potential trend reversal. In light of a higher high formation, FFB could advance further toward RM1.71-1.76-1.81 area. Cut loss at RM1.49.

Source: Hong Leong Investment Bank Research - 21 Jul 2022