Is there an opportunity to milk FFB 5306 FARM FRESH BERHAD now that it has lost much of its value?

 Is there an opportunity to milk  FFB 5306 FARM FRESH BERHAD now that it has lost much of its value?


Farm Fresh Bhd continued its descent, losing some 15% over the past 5 days to close at RM1.06 on July 7.


The heavy selling pressure comes after Australia’s Bega Group warned that it could be facing a non-cash impairment of between AU$180 million-AU$280 million due to a decline in milk production volumes and rising dairy ingredient prices.


On July 4, Farm Fresh clarified that its exposure to falling milk production is lesser in Australia, compared to that of Bega, which sources 100% of its milk requirement from Australian farmers.


Farm Fresh’s attempt to arrest the share price decline somewhat worked as the counter did not continue to fall after touching a record low of 99 sen on July 4.


It is indeed disappointing for investors who believed in the dairy producer’s growth prospects.


The company was one of the highly anticipated IPO in 2022.


It was Malaysia's largest IPO since June 202, with its listing price of RM1.35, giving it a market capitalisation of RM2.5 billion.


Investors were happy as the counter was still trading above its IPO price, touching its 52-week high of RM1.75.


However, things started to turn sour end May this year as the counter continued its downtrend since May 29.


Thereafter, it has closed below its IPO price.


Negative sentiments on the company are mainly stemming from the higher-than-expected dairy raw material costs.


Farm Fresh missed consensus earnings expectations, recording its weakest quarterly financial performance in the fourth quarter ended March 31, 2023.


Its net profit fell 72.4% yoy and 74% qoq to RM4.9 million.


This was despite posting higher revenue of RM161.36 million from RM128.07 million a year ago.


The latest results saw Maybank Investment Bank Research downgrade its call to “hold”.


The research house revised its target price lower to RM1.60 from RM1.75 previously, after it cut Farm Fresh’s FY2024 earnings estimate by 21%.


Meanwhile, RHB Research maintained its “buy” call on the counter.


However, it lowered its target price to RM1.72 from RM1.75 taking into account the group’s weaknesses in earnings visibility and consistency.


However, it believes the worst is over for Farm Fresh and sees minimal earnings downside risks moving forward and the heavy selldown about 29% year-to-date may have largely priced in the weakness.


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