Farm Fresh private placement a positive exercise

PETALING JAYA: Farm Fresh Bhd’s proposed private placement of up to RM200mil to fund faster expansion of regional dairy operations and increase the company’s stake in The Inside Scoop Sdn Bhd is considered a positive move by the market.

BIMB Research remains upbeat on the dairy producer’s long-term regional trajectory. It maintained a “buy” call on the stock with a target price (TP) of RM2.91, despite an immediate 5.8% share issuance and 5% to 6% earnings per share (EPS) dilution.

The research house views the capital exercise positively, noting that the strategic deployment of funds offsets immediate equity dilution.

The proposed placement involves issuing up to 109.7 million new shares, expanding the share base by roughly 5.8%.

Proceeds would go to the expansion of operations in Cambodia (RM92mil), domestic manufacturing upgrades (RM56.3mil), and acquiring an additional 20% stake in ice cream brand The Inside Scoop for RM50mil, boosting its ownership to 85%.

BIMB Research noted that increasing the company’s stake in The Inside Scoop expands its footprint in the higher-margin consumer segment, while curbing minority interest leakage.

Furthermore, expanding integrated farming and processing in Cambodia accelerates the company’s Indochina growth phase, while preserving internal cash flow and balance sheet flexibility.

“We maintain our earnings forecasts as the planned investments remain broadly in line with our existing assumptions,” the research house said, reiterating that long-term operating efficiencies will outweigh near-term share base enlargement.

“While the placement is dilutive in the near term, we believe the strategic benefits and improved balance sheet flexibility support Farm Fresh’s longer-term growth trajectory,” it said.

TA Research considers the placement a timely move to fund the sizeable financial year ending March 31, 2027 (FY27) capital expenditure without overburdening the balance sheet.

Reiterating a “buy” call with a RM2.91 TP, the research house said the exercise will improve funding flexibility, curb additional bank borrowings, and lower the company’s net gearing from 0.89 times to 0.53 times on a pro-forma basis.

TA Research expects the Cambodian expansion to boost regional efficiency by localising milk production, cutting logistics costs, and refining operating economics.

The research house said assuming full issuance of the 109.65 million placement shares, the company will experience EPS dilution of approximately 5.5% for FY27 to FY29.