Rhone Ma to ride on dairy business

Milk processing is the next key growth area

“We believe the group will succeed given its experience in animal health and food ingredient supply that should complement its new A2 milk farming and distribution business.” Publicinvest Research

PETALING JAYA: Rhone Ma Holdings Bhd’s long-term prospects look bright, thanks to its dairy business which it diversified into in 2020.

The diversification into dairy farming occurred following its investment in Nor Livestock Farm Sdn Bhd.

The group is now set for further expansion via potential land acquisitions.

Publicinvest Research said it is bullish on the long-term prospects of the group as its milk processing business could be the next key growth area.

“We do not expect any material contribution in the near term as it should take time for Rhone Ma to penetrate and gain higher market share in the competitive dairy farming industry.

“Having said that, we believe the group will succeed given its experience in animal health and food ingredient supply that should complement its new A2 milk farming and distribution business,” it added.

A2 milk is of higher quality and helps to prevent symptoms of lactose intolerance. The group is involved in the manufacturing, trading and distribution of animal health products.

The research house said that over the next two to three years, it expects end-to-end animal health solution would remain the largest contributor, accounting for close to 80% of the group’s revenue.

With a growing pet population in Malaysia as well as owners’ greater willingness to spend on their pets’ well-being, the research house believed demand for animal health solutions will continue to grow.

To further grow its dairy business, the group is seeking to acquire another piece of land (about 100 acres) to expand its herd size.

The herd size is expected to reach 500 cattle by the end of financial year 2023 (FY23) from the current 300 cattle. Coupled with the new land acquisition, the group aims to reach about 1,000 cattle.

However, Publicinvest, which is maintaining its “outperform” call on the stock with an unchanged target price of 88 sen, said Rhone Ma’s earnings contribution from the dairy business remains muted for now, given the gestation period and lack of economies of scale.

Nevertheless, it believes the dairy business would start to contribute meaningfully to the group from FY25 onwards.

The group currently does not process milk that is being produced at its Batang Kali facility but is sold to wholesalers due to the absence of a milk processing plant.

However, by the first quarter of FY23, Publicinvest said the group would be able to sell processed milk to consumers with the commissioning of its milk processing plant in Kapar, Selangor.

Raw milk produced from its Batang Kali facility is predominantly the A2 milk. The group decided to switch away from cross breed to importing purebred Holstein cows (that are able to produce A2 milk) due to higher milk yield of an additional 50%.

The group’s net profit in the second quarter ended June 30, 2022 rose to Rm3.02mil from Rm1.95mil previously, on the back of higher revenue from the animal health products and equipment division, as well as its food ingredients segment.

Revenue in the second quarter grew to Rm46.83mil from Rm38.83mil. Basic earnings per share stood at 1.36 sen compared with 0.97 sen previously.