PETALING JAYA: A resin shortage affecting plastic packaging for larger products under Farm Fresh Bhd
is transitory and contained, according to BIMB Securities Research.
It views the resin shortage – now in its third week – as operational, transitory, and earnings‑contained with limited sensitivity, given the relatively small contribution of plastic packaging and management’s demonstrated flexibility in sourcing and packaging formats.
The research house said: “The disruption is external and input-specific, rather than indicative of any operational weakness within Farm Fresh.”
It added that the company has secured an alternative supply – including from Petronas Chemicals Group Bhd’s Kerteh facility, albeit at a higher cost – while increasing the use of gable-top packaging.
“Demand conditions remain resilient, supported by steady consumption trends and seasonal strength during Ramadan.
“Notably, management has opted to absorb higher input costs rather than pass them through, prioritising volume stability and market share retention,” it said.
“From a cost perspective, the impact is inherently contained.
“Plastic packaging accounts for only 3.7% of total cost of goods sold, significantly limiting earnings sensitivity even under elevated resin price assumptions,” it said, noting that feed costs – the largest cost component – have eased and continue to trend lower.
The research house estimates that earnings before interest and tax would see margin compression of just 40 to 70 basis points, even with a 30% increase in resin prices resulting in a 10% volume decline.
“This remains well within historical volatility ranges and does not warrant any immediate earnings revision.
“The key risk is duration. A prolonged supply disruption extending beyond three months would raise execution risk and could gradually weigh on volumes and margins,” BIMB Research said, adding that normalisation within one to three months is unlikely to materially impact full-year earnings.
The research house noted that the company’s growth trajectory remains intact and has upgraded the stock to a “buy” recommendation from a “hold”.
However, it has maintained the target price at RM2.91, as the recent share price weakness presents a tactical entry opportunity rather than a signal of deteriorating fundamentals.
“Medium-term prospects remain favourable, underpinned by an intact expansion pipeline, easing feed costs, and resilient demand,” BIMB Research said.
