Review

• Farm Fresh Bhd (FFB) 1QFY25 core net profit of RM25.5mn came in within ours and consensus’ expectations, at 23% and 24%, respectively.

• 1QFY25 core PBT surged to RM27.8mn, up from RM2.8mn in 1QFY24. The solid result was mainly driven by: i) a 30.3% YoY increase in sales to RM241.7mn, ii) lower raw materials prices, and iii) contributions from SinWah and Inside Scoop amounting to RM21.0mn in 1QFY25 (+35.8% YoY). As a result, the PBT margin improved by 8.6%-pts to 11.7%.

• Malaysia’s operating PBT surged to RM28.6mn, up from RM9.1mn, due to higher sales contributions from new products and HORECA distribution channel, which accounts for 28-30% of Malaysia’s revenue.

• Meanwhile, Australia’s operations reported a LBT of RM0.3mn, compared to a loss of RM3.2mn a year ago, due to higher revenue of RM38.2mn (+7.2% YoY).

• 1QFY25 sales grew 12.4% QoQ to RM241.7mn, in tandem with a 17.0% QoQ increase in core earnings. Australia’s operations saw LBT narrow to RM0.3mn, compared to a loss of RM3.1mn in 4QFY24, while Malaysia’s operations improved by 2.4% QoQ to RM28.6mn.

• No dividend was declared for the quarter under review.

Impact

• We are maintaining our earnings forecasts and introducing our FY27 core earnings estimate of RM168.4mn (+5.1% YoY). Briefing Highlights

• Consumer Packaged Goods (CPG) ice cream was launched in Aug 24 for market validation at an average selling price (ASP) of RM2.90. The group plans to distribute the new products to mini markets, such as 99 Speed Mart and Shell stations, in 2QFY25 through the Sin Wah distribution channel.

• FFB had secured whole milk powder at an average price of USD3,248/tonne for physical deliveries until Dec 2024. Management has indicated that this low-priced inventory could last for the next 2 months.

• Additionally, the group has entered into futures contracts for the delivery of 2,900 tonnes whole milk powder from Jul-24 to Dec-24. Management guided that the group requires approximately 600 to 700 tonnes/month for production. As a result, the 2,900 tonnes, at an average price of USD3,063/tonne, would cover approximately 75% of the total volume needed until Dec CY24.

• The average unit cost of whole milk powder consumption in 1QFY25 was RM14.4/kg (4QFY24: RM14.4/kg). This represents a 28.5% decline YoY from RM18.5/kg in 1QFY24. As a result, we expect the PBT margin for 2QFY25 to remain intact, underpinned by lower raw material costs and higher revenue growth.

Outlook

• We remain optimistic about the group’s growth in FY25, driven by heightened demand and lower input costs.

Valuation

• We maintain our target price for FFB at RM1.97/share, based on a 25x CY25 EPS. Reiterate Buy.

Source: TA Research - 29 Aug 2024