FFB: Dairy Producer Posts Strong Outlook on Margin Health, Strategic Growth

TA Securities maintains its “Buy” recommendation and an unchanged target price of RM2.25/share for a prominent dairy producer, citing an optimistic outlook for fiscal year 2026 (FY26). This positive stance is underpinned by robust revenue growth, healthier gross profit (GP) margins, strategic international expansion, and a robust pipeline of new products.

Performance and Margin Resilience

Despite elevated global whole milk powder (WMP) prices, which have consistently traded within the USD3,800-4,000/tonne range, the group is expected to sustain stable GP margins throughout FY26. This resilience is primarily attributed to securing lower-cost WMP inventory at an average price of USD3,650/tonne, which is sufficient to cover production needs until December 2025.

Management anticipates a gradual reduction in WMP usage, driven by ongoing product reformulations and a strategic shift towards alternative raw materials such as skim milk powder (SMP). Furthermore, easing corn prices are expected to contribute to input cost stability. The group’s GP margin is projected to rise to 33.1% in FY26, a 1.0 percentage point increase year-on-year.

In Australia, while farm gate milk prices for the 2025/26 season have risen over 10% due to unfavorable weather, the impact on margins is expected to be neutral. This is primarily due to effective foreign exchange hedging, covering 80% of AUD exposure at a favorable rate of RM2.70-2.75, compared to approximately RM3.00 in FY25. This hedging is estimated to result in FX cost savings of 10-11%.

Strategic Expansion into Cambodia

The company views the current shortage of Thai milk in Cambodian supermarkets, which previously accounted for 80-90% of the country’s supply, as a significant strategic opportunity for accelerated market entry. Cambodia’s chilled milk market is estimated to be comparable in size to Malaysia’s, with an estimated value of USD13-14 million.

The dairy producer has already secured local distributors and initiated product orders from Brown Coffee, a prominent local coffee chain. Exports commenced in late August 2025, with products slated for listing in major modern trade channels like Aeon and Chip Mong in the coming weeks. The distribution network is projected to encompass over 100 retail outlets across Cambodia, with long-term plans for establishing a local presence and exploring further opportunities in the country.

Robust Product Pipeline

The group continues to enhance its product portfolio, with recent launches including Choco Malt, Consumer Packaged Goods (CPG) ice cream, butter, and new cultured and fresh milk variants. For FY26, further diversification is planned through new products such as cooking cream, whipping cream, additional flavored milk variants, premium cultured butter (produced via its Australian subsidiaries), and skim milk powder. These initiatives are deemed strategically positive, enabling entry into new product categories, reaching previously unserved consumer segments, and fostering sustained sales growth.