Ladang Permai Damai to help boost F&N’s milk supply

DSSB enters into a conditional share sale agreement with Dupont & Leosk and Malaysia Nominees 


MIDF Research has maintained its ‘Buy’ call and target price (TP) of RM30.03 a share on Fraser & Neave Holdings Bhd (F&N) as it sees positive prospects from F&N’s acquisition of Ladang Permai Damai Sdn Bhd. 

On Monday, F&N’s indirect 65%-owned subsidiary, Dagang Sejahtera Sdn Bhd (DSSB), entered into a conditional share sale agreement with Dupont & Leosk Enterprises Sdn Bhd and Malaysia Nominees (Tempatan) Sdn Bhd as registered owner of the shares and nominee company of OCBC Bank (M) Bhd for the proposed acquisition of the entire equity stake in Ladang Permai for a cash consideration of RM215.5 million. 

With the acquisition of DSSB, F&N will be able to enter the upstream fresh milk business for downstream production and distribution of fresh milk. 

“After the completion of the acquisition, Ladang Permai will lease the Permai Damai Estates to the F&N at a market rate to carry out operations of the integrated dairy farm and crop plantation,” MIDF stated in a report on the fast moving consumer goods (FMGC) concern yesterday. 

According to MIDF, the deal will enable F&N to own a vertical integration business and operations based on the locally-grown crop for feed to F&N’s dairy farm, which in turn will lower the value chain cost per litre.

“We think this will be beneficial for the group as it will be less dependent on imported milk for its production,” the finance firm stated. Moreover, MIDF views the acquisition will be value-accretive for F&N due to the suitability of the Permai Damai Estates for the its integrated dairy farming project, positive market value of RM224.2 million for the underlying assets of Ladang Permai with no outstanding debt or liabilities.

“We estimate the proposed acquisition will not have a substantial material impact on the gearing ratio of the group,” it added. 

Key downside risks include the unfavourable Malaysian ringgit to Thai baht translation, a stronger increase in raw material prices, and disruptions in the supply chain. 

F&N shares ended RM1.24 higher at RM22.86 yesterday, valuing the FMGC company for RM8.38 billion.