CGSI Research raised its core net profit estimates for Farm Fresh in FY26, FY27 and FY28 by 2.9%, 13.9% and 16.8%, respectively.
PETALING JAYA: Milk producer Farm Fresh Bhd
’s biggest driver of revenue growth is its ice cream business under the Cream Hauz brand, according to CGS International Research (CGSI Research).
“In our view, the ice cream product expansion and distribution is the most exciting, given the segment’s strong performance thus far, generating 12% of the revenue in the second quarter of financial year 2026 (2Q26).”
For perspective, the consumer-packaged ice cream line under Cream Hauz was only launched less than one and a half years ago, or August 2024 (FY25) to be specific.
Farm Fresh also has 65% in the artisanal ice cream chain Inside Scoop and a 70% stake in Sin Wah Ice Cream Sdn Bhd, which makes “aiskrim potong”.
CGSI Research, which has bumped up its profit forecasts for Farm Fresh, said new ice cream product launches in the near-term would allow Farm Fresh to expand its ice cream distribution to about 2,500 new petromart locations.
TA Research, in a note to clients, said the petromarts are an “underpenetrated channel” currently as Farm Fresh’s products are available in only 636 outlets.
It also said Farm Fresh will ramp-up large-scale ice cream production in 1Q26.
Farm Fresh’s current ice cream production capacity stands at 450,000 units per day.
“Upon completion of its Enstek facility, total capacity is expected to expand to one million units per day.
“This additional capacity will support the launch of new product formats, including cones, which account for approximately 25% of the impulse ice cream market by sales,” stated TA Research.
Farm Fresh is not just selling more ice cream, it is also selling ice cream with a better profit margin.
With a growing revenue mix of higher margin ice cream, we estimate Farm Fresh’s gross profit (GP) margins to expand to 34.8% by FY29, notwithstanding start-up costs in new markets, according to CGSI Research.
Such ice cream products carry a GP margin of about 50% compared to the group’s overall GP margin of 33.6% in 2Q26.
The fact that the ringgit is strengthening is also boosting Farm Fresh’s margins, added CGSI Research.
The stronger ringgit has mitigated the higher farm gate prices of Australian milk.
Farm Fresh’s management also noted that whole milk powder prices are easing in US dollar terms, further helping contain costs.
“We raise our core net profit estimates for Farm Fresh in FY26, FY27 and FY28 by 2.9%, 13.9% and 16.8%, respectively, on the back of higher revenue estimates as well as improved GP margin forecasts.”
Geographical expansion-wise, CGSI Research said Farm Fresh has seen good take-up in Cambodia for its products, helped by the local boycott of products from Thailand.
The dairy producer is now looking to establish a factory and a farm in Cambodia.
It is also in the early stages of establishing operations in Indonesia.
Despite the upbeat view on Farm Fresh and a higher target price of RM2.82, CGSI Research maintained its “hold” call on the stock, as it believes that the “good growth” is all priced in.
CGSI Research’s core net profit estimates for FY25 to FY27 are now 5% to 16% ahead of Bloomberg consensus forecasts.
“A rising earnings trend provides downside support, with risks from its expansion into new markets where teething problems and start-up losses could weigh on earnings and valuations,” pointed out the research house.
Meanwhile, it said Farm Fresh is the beneficiary of the government’s Sumbangan Asas Rahmah (Sara) programme.
“Most of Farm Fresh’s product range is eligible for Sara redemption.
“Beyond the routine Sara credits for all Sumbangan Tunai Rahmah recipients, the second RM100 tranche for all Malaysian adults, scheduled for mid-February, is expected to boost 1Q26 consumption.
“Coupled with a projected rise in tourist arrivals during Visit Malaysia Year 2026, demand in the hotel, restaurant, and cafe (Horeca) segment is likely to strengthen.
“Horeca continues to be a key distribution channel for Farm Fresh, accounting for around 25% of the group’s total revenue.”
TA Research has a “buy” call on Farm Fresh, with a target price of RM3.22 per share.
