Making its debut on Bursa Main Market today, FarmFresh is the largest and fastest growing integrated producer of dairy products in Malaysia. It operates 5 dairy farms in Malaysia and 1 dairy farm in Australia with approximately 3,500 milking cows. Farm Fresh has shown its commendable growth story and coupled its upcoming capacity expansion and oversea markets penetration, we forecast a 3-year net profit CAGR of 39.7% to RM96.0m for FY23. BUY with a target price of RM1.61 based on 28x PER CY23, premium to its F&B manufacturing peers based on its strong market share in Malaysia’s Dairy Industry.

Started in 10 years ago, backed by 30% stake from Khazanah National Berhad, Farm Fresh has grown significantly in market share to 42% in Chilled Ready to Drink (RTD) Milk, 10% in Ambient RTD Milk and 11% in Yogurt. Leveraging on multi-channel distribution network in all key cities with 135 SKUs in the book, revenue has achieved 2 year CAGR growth of 66%.

Of the RM301m IPO proceeds, RM140m will be used for establishment of new manufacturing hub and a new dairy farm and integrated processing facility within 24 months. The installation of filling and packaging line at Muadzam Shah Facility, two new processing facilities set up at UPM and Taiping as well as new manufacturing hub in Central Region of Peninsular Malaysia shall increase the annual production capacity from 136.99m litres to 201.14m litres. The new dairy farm which target to commence operation in year 2024 will have an additional capacity of 3,000 dairy cows from 9,960 herd size currently.

The company intends to invest RM40m to expands its Kyabram facility in Australia by adding 3 filling and packaging liens to product UHT/ambient products and export to APAC in 2Q23, and venture into large consumer market in Indonesia by replicating the Malaysia’s business model.

According to research by Frost & Sullivan, Malaysia dairy industry is projected to grow at 5-year (2021 to 2025) CAGR of 8.7% for RTD milk, 6.9% for yogurt and 5.5% for RTS plant-based milk. RTD milk segment in Indonesia and Philippines is expected to grow at a 5-year CAGR of 9.3% and 6.5% respectively. As Malaysia’s milk source is on net import basis, Farm Fresh will be benefiting from the 100% self-sufficiency target of fresh raw milk by 2025.

We expect Farm Fresh to register net earnings of RM75.9m, RM96m and RM110.3m for FY22-FY24 respectively. FarmFresh has also imposed a dividend payout policy of not less than 25%, as such we forecasted dividend yield to be at 0.96% and 1.10% for FY23 and FY24 respectively. Its balance sheet is also healthy with net cash of RM83.6m post IPO.

Source: Rakuten Research - 22 Mar 2022