PETALING JAYA: Farm Fresh Bhd
’s prospects remain positive thanks to the steady and growing demand for its products, alongside its expansion plans, say analysts.
Following a meeting with the group, Affin Hwang Investment Bank Research (Affin Hwang Research) said it is “reassured about Farm Fresh’s long-term business prospects”.
The research house said Farm Fresh’s dairy business is performing well, with steady demand growth, especially for ultra-high-temperature products, which continued to show strong momentum.
According to Affin Hwang Research, the company’s consumer-packaged goods ice cream segment has also surpassed initial expectations.
The research house noted that Farm Fresh’s extruded stick ice cream line, launched in July, is operating at a 70% utilisation rate, producing about 50,000 pieces per day – up from 30,000 per day or 42% utilisation in August.
“Additionally, two new lines are expected to arrive in November – with moulded stick lines capable of 180,000 pieces per day and cone lines at 70,000 pieces per day,” the research house said.
Affin Hwang Research highlighted that Farm Fresh also expected potential growth in Sabah and Sarawak, that had historically contributed just 4% to 5% of total revenue.
It said Farm Fresh aimed to increase its market penetration there, while it continues to expand its share in Peninsular Malaysia’s hotel, restaurant, and cafe channels.
“But stronger growth is expected to come from Sabah and Sarawak as it remains a largely under-penetrated market,” the research house added.
Affin Hwang Research revised its earnings forecasts for Farm Fresh upward by 12%, 4% and 1% for its financial years ending March 31, 2025 (FY25) to FY27 respectively, attributing the increase to better-than-expected ice cream line utilisation, the earlier-than-expected arrival of new production lines, and the stronger ringgit.
“That said, our FY26 and FY27 forecasts are only up by single digits as we are mindful of the recent uptrend in the whole-milk powder prices,” it said.
The research house projected a compounded annual growth rate (CAGR) of 38% over the next three years, noting that its forecasts remain conservative due to the relatively low utilisation rate modelled for the ice cream lines.
For its second quarter ended Sept 30, 2024 (2Q24), with results scheduled to be reported on Nov 28, Affin Hwang Research expects Farm Fresh to see earnings growth of 12% quarter-on-quarter and 116% year-on-year, reaching RM29mil.
According to the research house, the growth would be driven by higher sales in both dairy and ice cream segments, alongside margin improvements from a stronger ringgit and lower whole-milk powder costs.
The research house reiterated its “buy” rating for Farm Fresh with a higher target price of RM2.10 per share, up from RM1.80.
The higher target price is based on a price-earnings ratio (PER) of 30 times, revised from 27 times, applied to Farm Fresh’s estimated FY25 earnings.
“Arguably, this 30 times PER is much higher compared with some of its peers, but we believe the premium is justified by Farm Fresh’s robust earnings growth profile with a three-year CAGR of 38%,” the research house said.
