KUALA LUMPUR (July 4): Farm Fresh Bhd’s share price continued to trend lower on Tuesday (July 4), closing at its record low for the third consecutive trading day, on market concerns over stiff competition for raw milk.
The stock tumbled as much as 16.8% to its intraday low of 99 sen, before closing at RM1.14, down five sen or 4.2%, for a market capitalisation of RM2.13 billion.
It was the second most actively traded stock on the local stock exchange, with 77.38 million shares changing hands.
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 (RM559.5 million-RM870.3 million) due to a decline in milk production volumes and rising dairy ingredient prices.
In a filing with Bursa Malaysia on Tuesday (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.
“While Farm Fresh is also impacted by the less-than-expected decrease in farmgate milk prices in Australia as we do purchase milk from third-party farmers in Australia, we are much less impacted compared to Bega Group,” it stressed.
Farm Fresh further shared that its purchase of milk ingredients from third-party farmers in Australia is expected to account for approximately 14% of its total milk ingredients of equivalent to more than 100 million litres in the financial year ending March 31, 2024.
“Additionally, 70% of the raw milk used by us comes from our own farms in both Malaysia and Australia,” the group said.
It added that the group continues to take into account various factors in determining its investments in upstream, midstream and downstream operations, as well as the input costs and variations that occur from time to time, to ensure that it does not depend heavily on any specific milk ingredients source.
Bega’s impairment was due to the decline in Australia’s milk production by 700 million litres or 9% over the past two years. The limited capacity has resulted in intense competition for raw milk. Labour shortages have also been partly blamed for what Bega described as a “continued decline”.
Farm Fresh’s share price has been on a downtrend since May 29, when it closed at RM1.56. Since May 31, the counter has closed below its initial public offering price of RM1.35.
According to Bloomberg, there are four “buy” calls and five “hold” calls on Farm Fresh, with target prices ranging from RM1.37 to RM2.04.
Farm Fresh’s largest shareholder is Rainforest Capital Sdn Bhd, holding 571.01 million shares or a 30.5% stake. Its second largest shareholder is Farmchoice Foods Sdn Bhd, which has 232.66 million shares or a 12.43% stake, followed by Agrifood Resources Holdings Sdn Bhd, with 219.24 million shares or an 11.71% stake.
On March 22 last year, the dairy producer made a strong debut on the Main Market of Bursa Malaysia. Its share price soared as much as 51 sen or 37.78% to RM1.86, and ended its maiden trading day at RM1.72.
However, Farm Fresh logged its weakest quarterly financial performance in the fourth quarter ended March 31, 2023 (4QFY2023), as its net profit fell 72.4% year-on-year and 74% quarter-on-quarter to RM4.9 million. This was on the back of higher revenue of RM161.36 million, from RM128.07 million a year ago.
The group missed consensus earnings expectations due to higher-than-expected dairy raw material costs.
The latest results also prompted Maybank Investment Bank Research to downgrade its call to “hold”, with a lower target price of 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, albeit with a lower target price of RM1.72, from RM1.75, as it sees “the worst is over” for the dairy group.