Maybank Investment Bank (Maybank IB) has released a full report for Farm Fresh by imposing a ‘buy’ status and a price target (TP) of RM1.95 on the local dairy product company.
The rating and TP were given based on the compound annual growth rate (CAGR) of net profit for a period of 3 years (FY21 ended 31 March 2021 to FY24) of 23%.
According to a note from Jade Tam of Maybank IB, the 23% CAGR figure was driven by a 3 -year yield CAGR of 15% and an increase in rate profit margin to 31% in FY23 to FY24.
He explained that the report was obtained based on the 5% increase in Farm Fresh product prices in the cold drinks ready to drink (RTD) and ultra high temperature (UHT) products categories which accounted for 76% of FY21 revenue.
He added that CAGR Farm Fresh is better than its counterpart related to dairy products by -2.3%, so the TP of RM1.95 is made based on price/income-to-growth (PEG) of 1.1 times the current price of RM1.69.
As for the ‘buy’ status, the decision was made with the support of the presence of a dominant dairy industry, strong management and strong revenue growth potential.
He argued that this has been driven by continued expansion plans in both dairy farming and processing facilities, which in turn will push its market share higher in the fresh milk-based products market.
In general, Farm Fresh is planning to penetrate the Indonesian, Philippine and Hong Kong markets in the near future while also planning to expand its product range including ice cream and infant formula to compete with existing powdered milk products.
As is well known, in September 2021 last Farm Fresh has grown to be the 2nd largest player in the total RTD milk category, with a large market share of 18% of revenue compared to only 3% in 2015.
Meanwhile, Farm Fresh shares traded down 10 sen at RM1.68 as of this writing with a market capitalization of RM3.12 billion.
