After impressive IPO debut, Malaysia's Farm Fresh eyes regional expansion

Kuala Lumpur

MALAYSIAN dairy producer Farm Fresh, which made an impressive debut on Bursa Malaysia on Tuesday (Mar 22), is looking to expand its presence in the region over the next year, with Hong Kong, Indonesia and the Philippines all on its radar, said Loi Tuan Ee, the company's group managing director and CEO.

Shares of the company, which raised RM1 billion (S$322.2 million) in its initial public offering (IPO), surged as high as RM1.86, or close to 38 per cent higher above the offer price, during the morning trading session.

The counter closed 27.4 per cent higher at RM1.72 with a total of 330 million shares changing hands.

Loi, who was speaking at a press conference, said the group is setting up a company in Hong Kong by the end of this year, with a target to export its products there within the next 7 to 8 months.

He also expressed interest in expanding to Indonesia and the Philippines through setting up partnerships.

"The opportunities are there. Indonesia has a population of close to 300 million, their per capita consumption of dairy products is around 70 kg per annum, as compared to 55 kg for Malaysians. In the Philippines, there are barely any fresh milk products in their supermarkets; these are the opportunities we can tap on," he said.

Farm Fresh's IPO - the largest in Malaysia since July last year - involved the raising of over RM1 billion, via an offer for sale of up to 520.2 million of its shares, and a public issue of 223 million new shares.

Farm Fresh operates 5 dairy farms in Malaysia and one in Australia across an aggregate of 2,185 hectares of land, with a total herd size of about 9,960 cows.

It also owns and operates 2 processing facilities in Malaysia with the capacity to produce 137 million litres of finished products annually.

The group also owns a processing facility in Australia with the capacity to produce around 84 million litres of processed milk each year.

On the rising raw material prices due to the ongoing Russia-Ukraine conflict, Loi noted that the group will take a long-term view on price adjustments and "try not to pass on the costs to consumers".

UOB Kay Hian Research's analyst Philip Wong said that spikes in the price of raw materials such as raw milk, packaging and feed, as well as foreign-exchange risks, would be key concerns for Farm Fresh, as every percentage-point swing in these prices would affect the company's earnings by 0.1 per cent to 1.4 per cent.

Still, he pointed to the group's compelling 3-year earnings compound annual growth rate of 16.9 per cent in FY2021 to FY2024, which he noted is unrivalled among local large-cap consumer peers.

Mercury Securities analyst Ronnie Tan said Farm Fresh is well poised for regional expansion as the group is now the market leader in the country's fresh milk sub-segment of chilled ready-to-drink (RTD) milk and ambient RTD milk (54 per cent and 48 per cent of market share respectively).

"The group is well positioned to expand their market presence on the backdrop of a growing Malaysian industry. The Kyabram production facility in Australia will also expand to increase its production capabilities to serve as an export hub to the Asia-Pacific region," he added.

Looking at Farm Fresh's performance on its first day of trading, Malacca Securities senior analyst Kenneth Leong said it is quite expected as its IPO for the Malaysian public portion was oversubscribed by 18.74 times.

Farm Fresh's share price is attractive to many investors as compared to its competitors such as Dutch Lady, F&N and Nestle, he said, adding that the share price still has room to grow in the future based on the company's steady revenue growth and expansion plans.

Although its price-earnings (P/E) multiple is around 60 times (based on profit-after-tax of RM32.83 million for the financial year ended March 31, 2021 due to its one-off tax liability and penalty of RM25.71 million), Leong noted that the group's normalised profit-after-tax of RM58.54 million should value the company at close to 30 times the P/E multiple.