Overview

Farm Fresh Berhad (FFB) is Malaysia’s largest homegrown dairy company, which engages in farming, manufacturing and distribution of dairy products and plant-based products. The Group operates five dairy farms in Malaysia and one dairy farm in Australia across an aggregate of about 5,367 acres of land, with a total herd size of around 11,925 dairy cows and bulls. The group operates two processing facilities in Malaysia producing 137.0mn litres annually and one facility in Australia producing 84.0mn litres annually.

Investment Themes

• Wider product offerings. In FY24, revenue from the newly acquired Inside Scoop and SinWah Ice Cream totalled RM50.4mn, accounting for 6.2% of the group’s total revenue. The group plans to introduce consumer-packaged goods (CPG) ice cream products in 2QFY25 to grow the new market. Leveraging synergies from these acquisitions, the group aims to capture a 5% market share by CY25. Looking ahead, FFB intends to launch several new products such as New flavoured RTD milk, CPG ice cream, butter, junior cultured milk, among others, catering to diverse preferences, dietary restrictions and functional requirements.

• Stable input cost ahead. Whole milk powder has declined from the peak in 2022, with an average price of less than RM3,500/tonne in 1HCY24. For the upcoming session (FY24/25), the average farmgate milk price for its Australian operations is expected to range between A$7.80kgMS and A$8.50kgMS. As a result, we expect improved gross profit margins in FY25, supported by steady input costs and the softening farmgate milk prices.

• Strong earnings growth. With a projected 5-year CAGR growth of 33.0% in revenue, we expect the group’s core earnings to achieve a 5- year compound annual growth rate (CAGR) of 30.6% from 2019 to 2025 (Figure 1). This robust earnings growth is expected to be driven by increased demand, a product mix that enhances margins, and ongoing initiatives to introduce new products.

Risk

• Risks factors are i) potential adverse increases in commodity prices, and ii) weaker-than-expected consumer sentiment resulting from the anticipated implementation of fuel subsidies in 2HCY24.

Recommendation

• We valued FFB at RM1.97/share based on CY25 PER of 25x. Maintain Buy. We like the group for its strong market presence in Malaysia's dairy industry and its compelling growth story.

Source: TA Research - 2 Jul 2024