Mercury Securities has recommended Farm Fresh Bhd with a target price of RM1.53 based on peers average PE of 28.8x and FY23F EPS of 5.3 sen. It said that it likes Farm Fresh for its strong market presence in Malaysia’s dairy industry, local and regional expansion plans.
The company has a dividend policy of 25%. The target price represents a potential return of 13.3% over the IPO price.
FARM Fresh Bhd has set the price of its public issue at RM1.35 per share and see the company raise RM1 billion. The IPO involves an offer for sale of up to 520.2 million existing shares and a public issue of 223 million new shares.
Mercury Securities said that Farm Fresh is one of the biggest and fastest-growing players in Malaysia’s dairy industry with a strong market presence across various dairy categories in Malaysia as of 9M21, commanding 42% market share in Chilled RTD Milk, 54% in Chilled RTD Milk products manufactured with fresh milk), 10% in Ambient RTD Milk (48% in Ambient RTD Milk products manufactured with fresh milk), and 11% in Yoghurt.
The stockbroking house said that the company is well-positioned to expand its presence locally on the backdrop of a growing Malaysian dairy industry which is projected by Frost & Sullivan to grow at a 5-year CAGR of 10%, 8%, 7% for the Chilled RTD Milk, Ambient RTD Milk, and Yoghurt industry from 2020 to 2025.
As at LPD, Mercury Securities said that Farm Fresh is exploring with a company to utilise its existing land spanning 500- 1,000 acres for the establishment of an integrated dairy project, with the first heifer expected to arrive by 1Q24.
It said that the new farm is expected to have a capacity of 3,000 dairy cows, increasing the aggregate capacity by 25.4% to 14,834 dairy cows. “ Completion of the new manufacturing hub is expected to increase total annual production capacity of finished chilled RTD products by 20.8m litres with the additional 2 filling and packaging lines,” it said
The stockbroking firm said that the company plans to increase production capabilities in Australia through the expansion of the Kyabram Facility, which will allow the Group to manufacture UHT/ambient products to serve as an export hub to the Asia- Pacific region.
