• Maintain BUY (TP: RM1.68). Farm Fresh Berhad (FFB) FY24’s net profit of RM63.5mn (+26.7% YoY) was in line with our and consensus expectations, accounting for 104.7% and 103.1%, respectively. Revenue and net profit both spiked by 28.7% YoY and 26.7% YoY, driven by increased sales in HORECA and commercial UHT, supported by contributions from the newly acquired Inside Scoop and Sin Wah. Looking ahead, sales are anticipated to increase from the consumer-packaged goods (CPG) ice cream launch and penetration into the Philippine market. Margin is expected to sustained or improved due to anticipated lower milk ingredient costs. We maintain a BUY recommendation on FFB with unchanged TP of RM1.68. Our valuation is based on a 30x PER (2-year weighted average some of global peers), pegged to FY25F EPS of 5.60 sen.

• Key highlights. FFB’s 4QFY24 revenue surged by 33.3% YoY, mainly supported by a 50% YoY increase in HORECA and commercial UHT sales. The total sales volume increased by 18.8% YoY, along with a 6% revenue contribution from Inside Scoop and Sin Wah. Net profit rose more than fourfold to RM23.9mn, thanks to significantly reduced costs of dairy raw materials, such as lower whole milk powder (WMP) and Australian farmgate prices. On QoQ basis, net profit spiked by +17.1%, mainly due to higher sales as well as a lower tax rate of 3.3% (-11 ppts QoQ).

• Earnings Revision. No changes to our forecast.

• Outlook. We maintain a positive outlook on FFB due to i) the upcoming CPG ice cream launch in Aug 2024 from the Taiping plant with the capacity of 320k pcs/day, ii) penetration into Philippines market in July 2024, and iii) the anticipated reduction in input cost as Australian farmgate price is expected to reduce in the upcoming season along with WMP price easing. Additionally, FFB’s initiative to use a biogas plant not only offers a cheaper alternative to diesel but also produces less CO₂. Furthermore, we gather that FFB has acquired diesel subsidy approval from the government.

Source: BIMB Securities Research - 30 May 2024