Kenanga Research has lowered its target price (TP) for Farm Fresh Bhd (FFB) to RM2.00 from RM2.08, reflecting earnings-per-share dilution from the dairy group’s proposed RM200 million private placement, while maintaining its Market Perform recommendation.
Farm Fresh has proposed placing up to 109.7 million new shares, equivalent to about 5.8% of its existing share base, to raise gross proceeds of up to RM200 million.
The issue price has been fixed at RM1.95 per share, representing a 3.2% discount to the five-day volume-weighted average market price (VWAMP) of RM2.0134 per share.
Kenanga said the exercise is targeted for completion by the third quarter of 2026, with the bulk of the proceeds earmarked for Farm Fresh’s expansion in Malaysia and Cambodia.
Of the estimated RM200 million in gross proceeds, RM148.3 million will be allocated for capital expenditure, including RM92 million for Farm Fresh’s processing facilities and integrated dairy farm in Cambodia.
Another RM56.3 million will be channelled towards expanding manufacturing capabilities in Malaysia, including at Larkin, Johor, as well as supporting new and complementary fast-moving consumer goods (FMCG) categories.
A further RM50 million has been earmarked for Farm Fresh’s previously announced acquisition of an additional 20% stake in Inside Scoop, with the remaining proceeds to cover expenses related to the placement.
Kenanga noted that Farm Fresh’s Cambodia processing facility is targeted to commence pasteurised milk production in October 2026, followed by ultra-high temperature (UHT) milk production by the end of the year.
Meanwhile, the first 1,500 heifers for the group’s integrated dairy farm in Cambodia are scheduled to arrive in April 2027.
The capital expenditure funded by the placement is expected to be progressively deployed over a 24-month period.
Should Farm Fresh raise less than the targeted RM200 million, Kenanga said the group intends to prioritise its capital expenditure requirements, with any funding shortfall reducing the RM50 million allocation for the additional Inside Scoop stake.
Assuming the maximum number of placement shares is issued, Kenanga raised its Farm Fresh earnings forecasts for FY2027 and FY2028 by 2% and 1%, respectively.
The revisions mainly reflect higher interest income expected from the enlarged cash balance following the placement.
Kenanga said earnings contributions from the projects funded by the placement have already been largely incorporated into its existing forecasts.
However, the additional shares issued under the exercise will expand Farm Fresh’s share base, resulting in estimated net earnings-per-share dilution of 4% for FY2027 and 5% for FY2028.
Consequently, Kenanga reduced its TP by 4% to RM2.00 from RM2.08.
The valuation remains based on an unchanged 28 times FY2027 forecast price-to-earnings ratio, broadly comparable with the peer group’s average historical forward PER of 29 times.
Kenanga said its valuation reflects Farm Fresh’s dominant position in the ready-to-drink (RTD) milk market and its expansion into the ice cream segment, while also taking into account the slower-than-expected commissioning of its new Enstek plant.
No ESG-related adjustment was made to the target price, with Kenanga assigning Farm Fresh a 3.5-star ESG rating.
Despite the dilution arising from the placement, Kenanga remains positive on Farm Fresh’s underlying business strengths.
The research house highlighted the group’s market leadership in the RTD milk segment, supported by its vertically integrated “grass-to-glass” business model, as a key investment consideration.
It also sees potential from Farm Fresh’s strategic expansion into higher-margin categories such as ice cream.
Kenanga said the group’s innovation-led product portfolio, including growing-up milk and chocolate malt products, provides further opportunities to capture evolving family consumption trends.
Nevertheless, after factoring in the enlarged share base and resulting EPS dilution, Kenanga reiterated its Market Perform call with a lower RM2.00 target price.
