KUALA LUMPUR: RHB research has upgraded Farm Fresh Bhd to a "buy" call, with a higher target price of RM1.51 from RM1.20, taking a long term view of the company's prospects while acknowledging near term headwinds.
The firm expects sequential earnings improvement from lower costs and solid sales growth momentum for the company.
This is despite Farm Fresh's first half of financial year 2024 results missing expectations.
Core net profit of RM20 million for the six-month period, met only 27-29 per cent of its and consensus' forecasts due to a milder than-expected margin recovery.
RHB research cut financial year 2024 forecast earnings for Farm Fresh by 11 per cent and left FY25-26 estimates materially unchanged.
RHB research expects higher savings from easing input costs going forward to drive further gross profit margin recovery and propel positive quarter-on-quarter (QoQ) earnings momentum.
"Also, new product launches should underpin relentless sales growth, on top of steady growth of chilled products and UHT (Ultra-high temperature)market penetration. Beyond the near term, Farm Fresh aims to launch its consumer packaged goods ice cream in early 2024, leveraging on the expertise of Inside Scoop and distribution network of newly acquired Sin Wah Ice Cream," RHB research said in its note.
The product range will cover both upmarket (under the Inside Scoop brand) and mass market (
Meanwhile, capacity expansions are ongoing with the Bandar Enstek plant after the Taiping plant came onstream earlier this year.
RHB research said longer-term growth prospects are also exciting, with various expansion plans lined up to extend its outreach in capturing rising dairy consumption.
"We also like the company for its entrenched brand equity and ambitious management team," the firm said.