New capacity a key earnings driver for Farm Fresh

KUALA LUMPUR: Farm Fresh Bhd released a set of disappointing results for its 2023 financial year, but there are expectations the worst is over for the dairy producer as it looks ahead towards an earnings recovery in the coming year.

Investment research firm RHB Research said in its results review that Farm Fresh's core net profit came in below expectations at RM57mil, a decline of 17% year-on-year, which represented 83-84% of its and consensus projections.

The research firm said the negative deviation could be attributed to weaker-than-expected gross profit margin, which was dragged lower by high production costs.

However, RHB noted that the group is increasing the selling prices of its chilled products from July onwards, which will narrow the gap with rivals that have already aggressively raised prices.

It added that farmgate milk prices are expected to undergo a moderation in the upcoming season starting July, which will spur margin recovery significantly depending the quantum.

A key earnings driver for Farm Fresh, according to RHB, will be the capacity increase in its existing plant and new Taiping plant, which will ease production constraints and meet strong market demand.

Post-results, RHB slashed its FY24 earnings forecast by 11%, but retains an expectation of 58% net profit growth. It also kept its FY25 forecast materially unchanged.

"Our TP drops to MYR1.72 (includes a 6% ESG premium), which implies 35x FY24F P/E – at a discount

to the valuation ascribed to its larger-cap consumer staple peers," it said, while reiterating its "buy" call.

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