With that, the bank-backed research firm expects the dairy company to register a three-year compounded annual growth rate (CAGR) of 23 per cent in net profit from its financial year ended March 31, 2021 (FY21) to FY24. The firm said earnings growth going forward will be driven by a ramp-up in processing milk volume of which we ascribed a 10-19 per cent growth per annum for FY22-FY24. “In terms of the average blended product price, we estimate a 2-3 per cent increase in FY22-FY24.
“This was after taking into account its recent product price adjustment for its chilled ready-to-drink (RTD) and ultra-high-temperature processing (UHT)/ambient products, by five per cent each, in September and December 2021, respectively,” it said. Farm Fresh’s third quarter (Q3) 2022 revenue fell nine per cent year-on-year (YoY) given the absence of raw milk sales and lower sales volume, particularly in the in-home consumption segment. Going forward, Maybank IB said sequential earnings are expected to be stronger in anticipation of higher sales volume driven by the resumption of schools, normalisation of food and beverages (F&B) business and Farm Fresh’s milk supply under the School Milk Program. “We understand that Farm Fresh has also historically experienced higher sales volume in the lead up to and during the Ramadan period. “That said, raw material costs, such as raw milk, corn, and alfalfa, remain elevated and we do not discount the possibility for another product price hike in mid-2022 in order for the company to defend its margins,” it said. As of the end of 2021, Farm Fresh had a cash balance of RM12 million, with a total gross short-term debt of RM 142 million and long-term debt of RM 107 million (including total lease liabilities), which resulted in a net debt position of RM237 million. The company’s net gearing increased from 39 per cent in FY19 to 98 per cent in FY21, largely from increased borrowings undertaken to fund various expansions in its dairy farms and production facilities. “Note that Farm Fresh issued a RM200 million sukuk in May 2021 were part of the proceeds was used to pay off its term loans, hire purchase liabilities, bank overdraft, revolving credit and the loan from a shareholder totalling RM130 million. “Hence, we expect Farm Fresh to turn net cash in FY22, followed by a four per cent net gearing in FY23-FY24,” it said. Maybank IB has initiated coverage of Farm Fresh with a Buy rating and target price of RM1.95 underpinned by its dominant dairy industry presence, strong management and robust earnings growth potential. “The latter will be largely driven by ongoing expansion plans in both dairy farming and processing facilities, which in turn will propel its market share higher within the fresh milk-based product market,” it added.
