Credit Suisse has initiated coverage on FFB 5306 FARM FRESH BERHAD with an "Outperform” rating and a target price of RM2.10.

Credit Suisse has initiated coverage on  FFB 5306 FARM FRESH BERHAD with an "Outperform” rating and a target price of RM2.10.

KUALA LUMPUR: Credit Suisse has initiated coverage on Farm Fresh Bhd with an "Outperform" rating and a target price of RM2.10.

The firm said as a consumer staple, Farm Fresh had fairly defensive characteristics, yet offers high medium-term growth prospects.

Credit Suisse noted that well-run Shariah-compliant consumer stocks in Malaysia tended to trade at a premium, likely due to scarcity reasons.

"Comparing Farm Fresh's valuations against peers, we find that it trades at a premium at 31.7 times financial year 20223 (FY23) price earning, versus domestic peers at 29.4 times and regional peers at 19.6 times.

"However, it is worth noting that Farm Fresh's net profit is projected to grow at a rapid pace of 32 per cent per annum between FY21 and FY23, compared to domestic peers' average growth of 7 per cent and regional peers' average growth of 15 per cent,"it said.

Established in 2010, Farm Fresh has grown into one of the largest integrated dairy producers in Malaysia.

As of September 2021, it commanded the second largest market share of 18 per cent within the ready-to-drink milk category.

"We believe one of the key reasons for Farm Fresh's rapid share gains is its unique home dealership network. In FY21, this channel contributed to 34 per cent of revenue from 19 per cent in FY19.

"Farm Fresh's recent contract win to supply milk to schools will also be instrumental in growing its home dealer network, in our view," it said.

Credit Suisse estimated Farm Fresh's normalised profit to grow at a 31 per cent compounded annual growth rate between FY21 and FY24, on the back of revenue growth, margin expansion and absence of unprofitable Australia operations.

It said the company had taken two rounds of average selling price hikes in 2021 to offset rising cost pressures, while its two key product launches in 2022 (Yarra by Farm Fresh and growing up liquid milk) were expected to underpin further sales volume growth.

"To cater to the strong demand, Farm Fresh is expanding its midstream production capacity, which we estimate would increase by 48 per cent between FY21 and FY24," it added.

https://www.nst.com.my/business/2022/04/790908/credit-suisse-rates-outperform-fresh-farm-rm210-target-price