Review

• Farm Fresh Bhd (FFB)'s 4QFY24 results came in within expectations. Core net profit surged by 2.6-fold YoY to RM21.8mn, driven by a 33.3% increase in revenue.

• Cumulatively, FY24 core net profit surged by 2.4% YoY to RM58.8mn, accounting for 98% and 95% of our and consensus full-year estimates, respectively. Revenue showed a growth of 28.7% YoY to RM810.4mn. The improved performance was mainly driven by higher sales in both Malaysia (+30.2% YoY) and Australia operations (+19.7% YoY), as well as favourable input costs (whole milk powder and milk) compared to FY23.

• Malaysia: FY24 PBT surged by 38.2% YoY, in tandem with a 30.2% YoY increase in revenue. The commendable performance was mainly spurred by increased demand from HORECA and UHT sales (+33.1% to 45.4mn litres), contribution from the recently acquired Sin Wah & Inside Scoop, as well as newly launched products. GP margin improved by 3.8%-pts to 30% in FY24, primarily attributable to lower input costs and price revision for chilled ready-to-drink (RTD) products and certain UHT products in 2QFY24.

• Australia: LBT dipped by more than 2-fold YoY to RM8.9mn despite revenue rising by 19.7% YoY to RM109.8mn. The loss was mainly due to the lower production volumes and increased input costs incurred in FY24. The decline in GP margin by 3.9%-pts to 5.2%, can be attributed to the rise in raw material costs, stemming from the announcement of higher farmgate prices for the CY22-23 seasons, consequently leading to increased purchasing costs.

• No dividend was declared for the quarter under review.

Impact

• We revised our FY25 and FY26 earnings forecast downwards by 4.0% and 4.3%, respectively, after inputting the FY23 full year figures.

Outlook

• We expect FFB’s topline to remain heightened in FY25, with the expansion in product range and lower costs. Moving forward, the group will launch more new products (Appendix 1), including consumer packaged goods (CPG) ice cream, which is expected to be launched by 1HFY25, while juniors cultured milk, plant-based yogurt, and butter products are expected to be launched by 2HFY25.

• The price of whole milk powder has significantly dropped from its peak in FY23, with the cost in 4QFY24 reducing by 22.2% to RM14.4/kg compared to 1QFY24. As such, we expect that FFB’s PBT Margin to hover at 12.8% in FY25, underpinned by sales growth and lower input costs.

• According to management, the Australia farmgate price has reduced by 3.8% to AUD9.74/kg from AUD10.2/kg. Hence, management is cautiously optimistic that the Australia operations would turnaround in the upcoming quarters, assuming input cost remain stable at this level. As a result, we expect the GP margin for its Australia operations to improve in FY25, underpinned by increased demand from Middle East countries amid lower input costs.

• In terms of ESG initiatives, the group plans to replace the diesel usage at the Muadzam Shah facility with biofuel derived from animal waste to reduce the carbon footprint. The commissioning of the biogas plant is anticipated by 1HFY25.

Valuation

• We roll forward our valuation to CY25 and upgraded the stock to BUY from Hold with a revised TP of RM1.97/share (previously RM1.52/share), based on 25x CY25 EPS.

Source: TA Research - 30 May 2024