Farm Fresh expansion plans, recovering profit margin bolster outlook

KUALA LUMPUR: The longer-term outlook on Farm Fresh Bhd is looking exciting as the dairy products producer's expansion plans are being lined up to capture rising dairy consumption, says RHB Research.

Farm Fresh has announced plans to launch its consumer packaged goods ice cream in early 2024, leveraging the expertise of Inside Scoop and the distribution network of newly acquired Sin Wah Ice Cream.

The product range will cover both upmarket (under the Inside Scoop brand) and mass market (under RM2 ice creams under Farm Fresh and Sin Wah brands).

Meanwhile, capacity expansions are ongoing with the Bandar Enstek plant after the Taiping plant came onstream earlier this year.

RHB upgraded Farm Fresh to "buy" in a results note following the release of its 1HFY24 results yesterday.

Farm Fresh posted a core net profit of RM20mil during the six months period, which was 36% lower year-on-year, and below consensus expectations due to a milder-than-expected margin recovery.

However, the rebound in the group's gross profit margin (GPM) is to be taken positively with sequential earnings expected to improve on cost tailwinds and solid sales growth momentum, said RHB.

Farm Fresh's GPM in 1HFY24 was 3.1 percentage points lower due to input cost pressures and dilution of its Australia operations in 1QFY24. Subsequently, the group's 2QFY24 GPM rebounded a strong 8.6 percentage points to 26.3%, its highest level in 1.5 years, to reflect the easing input costs and Inside Scoop's higher GPM.

"We expect higher savings from easing input costs going forward to drive further GPM recovery and propel positive quarter-on-quarter earnings momentum.

"Also, new product launches should underpin relentless sales growth, on top of steady growth of chilled products and UHT market penetration," said RHB.

Post-results, the research firm cut FY24 projected earnings by 11% but left its FY25-26 numbers materially unchanged.

RHB raised its discounted cash flow-derived target price to RM1.51 after tweaking its risk premium to account for an improving outlook.

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Farm Fresh , dairy , Inside Scoop


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