KUALA LUMPUR: Farm Fresh Bhd's gross profit margin is expected to remain robust in the upcoming quarters, supported by the progressive clearance of 11 per cent lower-cost farmgate raw milk and locked-in favourable whole milk powder prices until May 2025.
RHB Investment Bank Bhd (RHB Research) said that the rising contribution from ice cream, chocolate malt, and growing-up milk products should lend support to gross profit margin and drive sales growth ahead.
"Apart from expanding the portfolio of ice cream and chocolate malt products, other key new product launches in the pipeline include butter to further strengthen the hotel, restaurant, and catering (Horeca) offerings and cultured milk to build on the brand equity in the children's products market.
"The group has also successfully commenced operations at its Philippines production unit according to plan, after establishing a presence and having brand-built there via imports earlier," it said in a note.
Overall, RHB Research has maintained a "Buy" call on Farm Fresh, with a target price of RM2.11.
The firm said moving forward, downside risks to its recommendation include a sharp rise in input costs and major delays in expansion plans.
Meanwhile, RHB Research also noted that the group's first half ended Sept 30, 2024 (1HFY25) results met expectations of robust sales growth and margin expansion.
"We expect Farm Fresh to continue leveraging its established brand equity to penetrate more market segments in the dairy industry, thereby fuelling its relentless topline growth.
"Our 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," it added.
The group's 1HFY25 revenue surged 28 per cent to RM491 million, thanks to the solid sales growth of the Horeca markets and commercial ultra-high temperature (UHT) products, further aided by new product launches including Farm Fresh Choco Malt and consumer packaged goods (CPG) ice cream.
Its 1HFY25 gross profit margin expanded by 9.8 percentage points to 31.9 per cent, in line with the lower input costs and contributions from the new ice cream business subsidiaries, which command higher margins.
This more than offset the 50 per cent jump in operating expenditure to support business expansion and propelled 1HFY25 profit before tax to almost triple year-on-year (YoY) to RM58 million.
In terms of quarter-on-quarter (QoQ), the group's second quarter ended Sept 30, 2024 (2Q25) revenue and core net profit rose three per cent and seven per cent to reflect the relentless sales growth momentum and more favourable input costs.