Farm Fresh RM1b sukuk gets ‘Stable’ rating ahead of listing

It reflects Farm Fresh’s growing sales track record for its wide range of dairy products and strong domestic market position in key dairy segments 


FARM Fresh Bhd, which is set to debut on the Main Market of Bursa Malaysia today, has had its Islamic medium-term notes (IMTN) programme of RM1 billion rated AA-IS with a ‘Stable’ rating outlook by MARC Ratings Bhd. 

MARC Ratings noted it reflected Farm Fresh’s growing sales track record for its wide range of dairy products and strong domestic market position in key dairy segments. This is underpinned by a stable improving financial performance. 

Read more: Farm Fresh IPO share price set at RM1.35 a piece

“These strengths are moderated by risks associated with the execution of its expansion plans and sudden outbreak of diseases among its biological assets that can impact overall production,” the rating agency stated in a statement last Friday. 

Farm Fresh’s IPO was priced at RM1.35 a share while TA Securities Sdn Bhd has a ‘Buy’ call on the company with a target price of RM1.75 based on 28 times its financial year 2023 earnings. 

Farm Fresh is the biggest listing since last year and has received good support from investors with the public portion oversubscribed by 18.74 times. 

At RM1.35 a share, Farm Fresh will have a market capitalisation of RM2.51 billion upon listing based on an enlarged issued share base of 1.86 billion.

The company held a 42% market share of the chilled ready-to-drink (RTD) milk as at September last year and is ranked among the top three in the RTD (chilled and ambient) and yoghurt segments. 

MARC Ratings believes it is well-positioned to benefit from the steady growth of fresh milk consumption in Malaysia which increased by 4.8% year-on-year (YoY) in 2021. 

This is supported by the company’s decision to build a fourth processing facility on its farm in Taiping, Perak, which is expected to be completed by June 2022. 

Large-format retailers accounted for 46.5% of Farm Fresh’s revenue at the end of September 2021 followed by stockists (30%) and hotels, restaurants and cafes (16%). 

Read more: Farm Fresh aims for a listing in first quarter of 2022

Farm Fresh also exports to Singapore and Brunei and has plans to penetrate the Indonesian and Philippines market by investing RM40 million there, much of which will be funded from the RM300 million raised from its listing. 

It will use the balance of the proceeds mainly to build a new production hub and a dairy farm in East Malaysia. 

The IPO will expand its share capital to about RM380.7 million (pre-IPO: RM87.8 million), which would reduce the group’s leverage to a moderate 0.48 times from 0.98 times,” MARC Ratings added. 

Farm Fresh currently possesses five farms throughout the country with a total area measuring 2,829 acres (1,145ha) and herd size of 5,961 dairy cattle. 

It also has a 2,587-acre farm with 2,672 dairy cattle in Greater Shepparton, Australia, which takes its total farming area to 5,416 acres and herd size to 8,633 dairy cattle. 

The dairy concern has the highest number of dairy cattle and the largest production capacity of fresh raw milk among dairy farmers in Malaysia. 

During the six months ending Sept 30, 2021, it processed 37.6 million litres of raw milk, reflecting a 7% YoY growth, of which 5.4 million litres were sourced from its Malaysian farms, MARC Ratings noted. 

Farm Fresh has also acquired a significant amount of its raw milk requirement through purchases from third-party farmers, mainly in Australia. 

Due to the rising cost pressures as a result of labour, feed and transportation, the group increased its selling price by about 5% for its chilled RTD products in September 2021 and ambient products in December 2021. 

The rating agency notes the company currently has sufficient buffer to absorb some cost rise; however, any move to increase selling prices to offset rising costs would need to consider the competitive landscape of the domestic dairy industry. 


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