Farm Fresh on cusp of earnings recovery with step down milk powder costs

Farm Fresh Bhd (FFB) may be on a cusp of earnings recovery with the step down in whole milk powder (WMP) costs and sustained product demand says analysts at Maybank Investment Bank Bhd (Maybank Research).

In a recent company report, Maybank Research said that they believe FFB will be on track to post better quarter over quarter (q-o-q) earnings in the third quarter of financial year 2024 (3QFY24) as WMP costs have lowered back down to circa US$3,000 per metric tonne (MT) from a peak of circa US$4,700 per MT in March, 2022.

“With this, FFB is expected to benefit from the lower WMP costs from 3QFY24 onwards, given that it has fully utilise its high cost WMP inventory in the first half (1H) of FY24,” the research arm explained.

With these lower WMP prices expected to trend rangebound at around US$3,300 per MT to US$3,500 per MT in the near-term; FFB has brought forward its WMP requirement at a price range of between US$3,000 per MT to US$3,300 per MT for deliveries until 2H24.

Besides just lower input costs, the research arm highlights that FFB also enjoys resilient demand for its products.

And in order to capture further sales momentum for its existing liquid milk and dairy products and growing demand for new product launches, FFB will be installing additional lines for processing an portion packaging at its Muadzam Shah, Larkin and Taiping facilities.

Its new manufacturing hub in Bandar Enstek is also targeted to complete construction by 4Q234.

“With this, FFB’s total finished goods annual production capacity could increase by circa 17 per cent to 200.7 million litres once its preplanned capacity expansion plans are completed by estimated end of FY25.”

Additionally, the group is also aiming to launch its first consumer packaged ice cream product in Apr 2024 with roll-out of ice cream variant gradually introduced due to capacity limitations.

A new butter production line is also currently being added to its Taiping facility with butter products aimed to be ready for commercial sale by 2H24.