Farm Fresh entry into Inside Scoop a sweet deal


Fast growing: Customers queuing at the Inside Scoop. The founders of the firm will spearhead Farm Fresh’s ice cream division and lead its foray into the lucrative consumer packaged goods ice cream market.

PETALING JAYA: Farm Fresh Bhd’s completion of its 65% stake acquisition in ice cream chain The Inside Scoop Sdn Bhd (TISSB) for RM84mil holds greater upside potential, says TA Research.

The research house has upgraded the stock to a “buy” call with a revised target price of RM1.74, following recent weakness in Farm Fresh’s share price.

TA Research has also raised the group’s earning forecast by 6.1% for financial year 2024 (FY24), 5.5% in FY25 and 6.7% in FY26, respectively, to account for the earnings impact from the acquisition.

Post-acquisition, TA Research said Farm Fresh plans to leverage the expertise and experience of the existing management of TISSB’s Edmund Tan to launch consumer packaged goods (CPG) ice cream by January 2024.

“The plan is to introduce a premium version of CPG ice cream under the brand The Inside Scoop and a more affordable version of CPG ice cream under the brand Farm Fresh.

“Based on our channel checks, Malaysia’s CPG ice cream market is currently dominated by Unilever and Nestlé,” said TA Research.

The research house is also optimistic about Farm Fresh’s vertical integration into the ice cream retail chain due to the earnings-accretive nature of the acquisition and synergistic cost-saving impact.

The integration will also allow Farm Fresh to be more flexible in optimising its profitability along the value chain, it added.

The positive contribution should be more evident in the second quarter of FY24 (2Q24), as the earnings are consolidated fully throughout the quarter.

TA Research also believes that the recent disappointing results performance in 4Q23 due to a margin squeeze is expected to ease in 2Q24 with the 5% price hike in July 2023 for chilled products and the expected drop in farmgate prices.

For its fourth quarter ended March 31, 2023, Farm Fresh reported a net profit of RM4.89mil, compared with a net profit of RM17.68mil in the previous corresponding period.

Revenue grew to RM161.36mil, compared with RM128.07mil a year earlier.

In a statement last month on its fourth quarter performance, Farm Fresh said the lower profit was due to the long persisting and heightened input costs, labour costs as well as foreign-exchange rate fluctuations.

“Given the severity of the headwinds faced by the group and to counter the higher input prices, the group is increasing prices for its chilled ready-to-drink products and certain ultra-high temperature products in Malaysia effective mid-July 2023 by 5%.”

Additionally, Farm Fresh said the acquisition of TISSB will pave the way for the group’s entry and ownership in one of the fastest-growing artisanal ice creameries and largest home-grown ice-cream chains in Malaysia, which is expected to be accretive to the earnings of the group.

“We intend to leverage on the competency and experience of the founders of TISSB who will spearhead Farm Fresh’s ice cream division and lead our foray into the lucrative CPG ice cream market,” it said.

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