Malaysian dairy Farm Fresh Berhad to invest US$54.58m IPO funds into capacity expansion projects

MALAYSIA – Farm Fresh Berhad , a Malaysia-based dairy and plant-based products company, has earmarked 80% of its IPO proceeds (US$ 54.58 million) for multifaceted expansion plans.

The company revealed that the expansion projects that will see it increase its production capacity by 23% in the financial year ending March 31, 2023 (FY23) and 52% in FY24.

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It noted that the multi-pronged expansion plan will capitalize on rising fresh milk consumption in the Southeast Asian region and will be backed by its strong research and development (R&D) culture and growing product portfolio.

The expansion will strengthen the dairy’s presence in the ultra-high temperature (UHT)/ambient milk segment, entering new export markets in Indonesia and the Philippines, and launching new products (including plant-based yogurt and dairy-free packaged foods and beverages).

RHB Investment Bank in a report that taking into account all this, Farm Fresh Berhad’s net profit is forecasted to grow at a CAGR of 21% in the next three-year, given the scarcity of quality consumer staple stocks in the local market.

However, the investment bank believes the company deserves a valuation premium since factors like a sharp rise in commodity prices and major delays in expansion plans will risk its recommendation to the company.

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In addition, CGS-CIMB Research said it is not overly concerned about rising input costs as it believes Farm Fresh’s commanding share of the local market and superior product quality allows the group to raise selling prices to pass on any additional costs.

CGS-CIMB said: “Farm Fresh currently has a total of six dairy farms that are estimated to supply up to 32.7% of its raw milk requirements in FY23F and three processing centers in Australia and Malaysia.”

Backed by its multi-channel distribution network that includes its unique in-house home dealer programme (stockist/dealers: 30% of FY22 sales).”

On earnings, RHB has projected a rise in Farm Fresh’s net profit to RM94 million (US$ 21.38M) in FY23, RM118 million (US$ 26.84M) in FY24, and RM147 million in FY25.

 The company’s forecasts stood at RM623 million, RM731 million, and RM884 million for FY23 to FY25 respectively.

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While CGS-CIMB has forecasted a net profit of RM103.3 million on revenue of RM644.7 million in FY23, followed by RM127.1 million net profit on revenue of RM760.5 million in FY24 and RM157.9 million net profit on revenue of RM926.1 million in FY25.

The forecast comes at a time when the company registered an RM79.9 million net profit in FY22, up from RM36.23 million in FY21.

The higher gross profit margin was driven by the increase in sales of its chilled ready-to-drink (RTD) milk products, ambient RTD products, higher recruitment of new customers, higher sales of RTD milk products, and launching of new products.

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