Maybank IB Research said Farm Fresh’s plan to expand into other dairy products will open up new earnings growth opportunities in the long run.
PETALING JAYA: Farm Fresh Bhd
is on track to post better earnings for its third quarter of financial year 2024 (3Q24) on expectations of a stepdown in whole milk powder (WMP) costs and resilient product demand, according to Maybank IB Research.
The research house believes Farm Fresh’s plan to expand into other dairy products such as liquid growing-up milk, ice cream and butter will open up new earnings growth opportunities in the long run.
It said the WMP average selling price (ASP), which peaked in March 2022 at almost US$4,700 per tonne, was 30% lower at US$3,300 per tonne in the quarter.
Given that the dairy group has fully utilised its costly WMP inventory during the first half of FY24 (1H24), Maybank IB Research expects Farm Fresh to profit from lower WMP costs as a result of the correction in 3Q24.
Maybank IB Research said WMP ASPs are foreseen to trend range-bound between US$3,300 and US$3,500 per tonne in the near term.
“Farm Fresh has brought forward its WMP requirement at a price range of between US$3,000 per tonne to US$3,300 per tonne for deliveries until June 2024,” it said.
The research house said Farm Fresh will install additional lines for processing and portion packaging at its Muadzam Shah, Larkin and Taiping facilities.
This is to meet the increasing demand for it new product line as well as the continued sales momentum for the group’s current dairy and liquid milk products.
Maybank IB Research foresees Farm Fresh’s other dairy product line to drive the group’s long-term growth.
Together with its new manufacturing hub in Bandar Enstek, construction of which is targeted for completion in 4Q24, the annual production capacity of Farm Fresh’s total finished goods is expected to increase by 17% to 200.7 million litres by end-FY25.
