Largest integrated dairy producer in Malaysia
Farm Fresh provides exposure to the largest homegrown dairy company
and integrated producer of dairy products made from fresh raw milk in
the country. It operates six dairy farms in Malaysia and Australia with two
processing facilities, one in Malaysia and the other in Australia. Farm
Fresh boasts a diverse portfolio of dairy and non-dairy products which
totals c.135 SKUs. It also has the largest portfolio of locally
manufactured dairy products among the domestic integrated dairy
companies. We initiate coverage with a BUY and a TP of MYR1.95 (based
on CY23 domestic dairy-related peer simple average of 29x).
There is more room to grow
As at Sep-2021, Farm Fresh has grown into the second largest player in
the total RTD milk (chilled and ambient) category with a market share of
18% of revenue, from a 3% market share in 2015. Leveraging on the
quality and popularity of its products amongst consumers, Farm Fresh
has devised future expansion plans in its upstream and mid-stream
segments to cement its leadership position within the industry while also
driving volume growth through new SKUs and product innovations.
3-year net profit CAGR of 23%
We estimate a 3-year (FY21-FY24E) core net profit CAGR of 23% largely
driven by a 3-year revenue CAGR of 15% and an increase in gross profit
margins to 31% in FY23-FY24E, from 28% in FY21-FY22E. This comes on
the heels of Farm Fresh’s recent 5% product price hike for its chilled RTD
and UHT/ambient milk categories which collectively accounted for 76%
of revenue in FY21. Top-line growth will also be supported by Farm
Fresh’s progressive growth in processing milk volume from FY22-FY24E.
Target price of MYR1.95
Our TP of MYR1.95 pegs Farm Fresh’s earnings to CY23 simple weighted
average PER of its domestic dairy-related peers of 29x. The group’s 3-
year (FY21-FY24E) core net profit CAGR of 23% compares favourably
against its listed dairy-related peers of -2.3%, as does its PEG of 1.1x at
the current price of MYR1.69, relative to its peer average of 3.4x.