• Maintain BUY, new MYR1.69 TP from MYR1.65, 15% upside, c.1% FY25 (Mar) yield. Farm Fresh’s FY24 results met expectations thanks to relentless topline growth and strong margin recovery on easing input costs. Growth prospects are exciting, underpinned by various product launches, whilst cost tailwinds should continue to support margin recovery. We continue to like FFB for its ambitious multi-pronged expansion roadmap, established brand equity, and the market segment it is in to capture the demand of consumers with increasing health awareness.

• FY24 results within expectations. Core net profit of MYR63m (+10% YoY) accounted for 98-102% of our and consensus’ forecasts. Post results, we make minor changes to our earnings forecasts after updating FY24 numbers, and roll out FY27F earnings (+20%). Correspondingly, our DCF-derived TP is little changed at MYR1.69 (inclusive of a 6% ESG premium), which implies 30x FY25F P/E – at a discount to its large-cap consumer staple peers.

• Results review. YoY, FY24 revenue jumped 29% to MYR810m, fuelled primarily by strong UHT volume growth (+49%), rising food service and hotel industries (HORECA) sales, and contribution from newly acquired subsidiaries. FY24 GPM recovered strongly by 10.1ppts to 30.4% owing to the easing of key raw material costs and contribution of Inside Scoop. The abovementioned managed to offset the 51% hike in opex incurred to support business expansion, translating to a 10% growth in core net profit. QoQ, 4QFY24 revenue inched up by 2% as the robust growth in Malaysia (+6%) more than mitigated the sharp decline in Australia (-25%) due to a 1-week plant maintenance shutdown. The latter, together with higher feed costs in its Malaysia operations due to extreme dry weather, led to a halt in GPM recovery momentum and flattish 4QFY24 core net profit of MYR22m.

• Outlook. We foresee more headroom for GPM to expand, considering the stabilisation of key raw material prices, whilst farm gate prices of Australia raw milk in the new season starting July is expected to fall. On the other hand, the group is launching its consumer packaged goods ice cream products by August, aiming to capture a 5% share in the MYR1.2-1.3bn market in two years. FFB will be leveraging on Sin Wah Ice Cream’s network and pricing its products competitively to give the incumbent players a run for their money. Meanwhile, we understand that the Australia unit is seeing a strong pick-up in export sales to the Middle East, which will lift the utilisation rate going forward and propel an earnings turnaround.

• Risks to our recommendation include a sharp rise in input costs and major delays in expansion plans.

Source: RHB Research - 30 May 2024