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Farm Fresh to see higher profits on lower raw material prices, better forex

KUALA LUMPUR: RHB Research has raised its target price and earnings forecasts for Farm Fresh Bhd on expectations of easing raw material prices and favourable foreign exchange helping margins grow.

It maintains it "Buy" call on the company with a target price of RM2.11 from RM1.88 a share previously.

The firm said the company's gross profit margin stayed above 30 per cent in the last three quarters, and there could be more upsides going forward.

"This is as the lower-priced whole milk powder and raw milk (-5 per cent and -11 per cent vs first quarter financial year 2025 (1QFY25) March numbers are reflected in subsequent quarters. Additionally, the stronger ringgit will translate into cheaper sourcing costs, as more than 40 per cent of cost of goods sold is imported content," it said.

RHB Research raised FY26F-27F earnings by 5 per cent each to factor in its revised in-house foreign exchange assumptions and higher minimum wage.

"We believe Farm Fresh will continue to leverage on its established brand equity to penetrate more markets, thereby fuelling the relentless topline growth," RHB Research said.

The firm added that its positive stance is premised on the visible and long runway for growth, more consistent earnings delivery, and management's ambitious vision, which should warrant a valuation premium.

Farm Fresh aims to capture a 5 per cent share of the consumer-packaged goods (CPG) ice cream market, projected to exceed RM1.2 billion by 2025, by diversifying its offerings.

It recently launched the Cream Houz brand, after Yarra by Farm Fresh and Farm Fresh Grow at end 2022.

Farm Fresh is also aiming to grab a share in the lucrative chocolate malt beverage markets worth RM1 billion, as the ongoing consumer boycott action has opened a rare window of opportunity.

It launched a powder variant in July and there are plans to roll out ready-to-drink  products in 2025.

Butter products will be the new addition to the hotel, restaurant, and café/catering to sustain this segment's strong sales growth - it now accounts for c.30 per cent of total sales (2021: 17 per cent).

Outside of Malaysia, Farm Fresh recently started production in the Philippines after having established a presence and brand-built via imports earlier.

Risks to its recommedation include a sharp rise in input costs and major delays in expansion plans.

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