Farm Fresh Berhad: A High-Growth Play in a Shifting Dairy and Plant-Based Landscape

The dairy and plant-based beverage industry is at a crossroads. Traditional dairy remains a cornerstone of global nutrition, but plant-based alternatives are reshaping consumer preferences, driven by sustainability concerns, health trends, and ethical considerations. Amid this transformation, Farm Fresh Berhad (KLSE:FFB) has emerged as a standout performer, posting a 67.5% surge in net profit for FY2025 and expanding its product portfolio into ice cream, malt beverages, and international markets. With a trailing P/E ratio of 31.98, the question looms: Is this valuation justified by the company's growth trajectory and strategic bets?

A Surge in Earnings and Margin Expansion

Farm Fresh's FY2025 results were nothing short of explosive. Revenue jumped 21.1% to RM981.18 million, while net profit soared 67.5% to RM106.39 million. This outperformance was fueled by a combination of factors:
- Ice Cream Division: Acquisitions of The Inside Scoop and Sin Wah Ice Cream added RM100 million in annual revenue, with margins expanding from 7.8% to 11%.
- Horeca and Minimart Sales: A 30% increase in commercial UHT product sales and a 25% rise in Horeca (hotel, restaurant, and café) demand.
- Product Diversification: Over 200 SKUs, including plant-based milk, chocolate malt, and high-protein low-lactose products, broadened the company's appeal.

The earnings per share (EPS) leap from RM0.034 to RM0.057 underscores the company's ability to convert revenue growth into shareholder value.

Strategic Expansion: Ice Cream, Malt, and Global Ambitions

Farm Fresh's growth isn't just about numbers—it's about vision. The company is building a 1 million-piece-per-day ice cream production hub in Enstek, set to open in 2026, and plans to double its freezer network to 20,000 units by 2028. This infrastructure will solidify its dominance in Malaysia's RM1.3 billion ice cream market, where it already commands a 25% share.

Meanwhile, Farm Fresh Choco Malt has become a breakout hit, capturing 15% of the malt beverage market in Malaysia. The product's success reflects a broader trend: consumers are increasingly seeking indulgent yet nutritious options, a sweet spot for Farm Fresh's innovation pipeline.

Internationally, the company is making calculated moves. A pasteurized milk plant in the Philippines and plans to establish a farm and factory in Indonesia position it to tap into Southeast Asia's growing middle class. These markets, with their high dairy consumption and rising disposable incomes, could become new profit engines.

Valuation: P/E of 31.98 in Context

To assess whether Farm Fresh's P/E ratio is justified, we must compare it to industry benchmarks. The Packaged Foods sector has an average P/E of 31.54, while Danone S.A. (DANOY), a global dairy and plant-based leader, trades at a P/E of 26.00. Farm Fresh's 31.98 is slightly above the industry average but not outlandish, especially when considering its 67.5% net profit growth—a rate that dwarfs the sector's 9% CAGR for plant-based products (2025–2030).

The company's P/E ratio also reflects its premium positioning. Unlike many plant-based peers, Farm Fresh is not solely reliant on the volatile plant-based segment. Its diversified portfolio—spanning traditional dairy, ice cream, and malt beverages—provides a buffer against sector-specific headwinds. For instance, while U.S. plant-based milk sales declined 5% in 2024 due to price sensitivity, Farm Fresh's plant-based products in Malaysia have maintained steady demand, supported by government incentives for sustainable agriculture.

Risks and Considerations

No investment is without risk. Farm Fresh's aggressive expansion into ice cream and international markets requires significant capital. The Enstek plant, for example, will cost RM200 million, and scaling operations in the Philippines and Indonesia could strain cash flow. Additionally, the plant-based sector remains price-sensitive; if Farm Fresh's premium pricing strategy falters in new markets, margins could compress.

Another concern is competition. Nestlé and Unilever are deepening their plant-based offerings, while local rivals like Yomei and Nestlé's Milo brand dominate the malt beverage space. Farm Fresh must continue innovating—its recent foray into high-protein, low-lactose products is a step in the right direction.

The Verdict: A Buy for the Long-Term

Farm Fresh Berhad's P/E ratio of 31.98 is justified by its exceptional earnings growth, strategic diversification, and strong margins. While the valuation is slightly above the industry average, the company's ability to execute on its expansion plans and navigate the dairy-plant-based transition gives it a unique edge.

For investors, the key is to balance optimism with caution. The stock is not a short-term trade—it's a long-term bet on a company that's redefining Malaysia's dairy landscape. If Farm Fresh can maintain its 67.5% growth rate in FY2026 and successfully scale its international operations, the current P/E could look like a bargain.

Investment Recommendation: Buy for long-term growth, with a target price of RM1.20 (a 30% upside from current levels) over the next 18 months. Monitor cash flow from the Enstek plant and international market penetration for confirmation.