FPHB: Earnings Fall Short on Elevated Administrative Costs, Strategic Outlook Positive

A recent investment bank research report indicates that the company’s core net profit for the third quarter of fiscal year 2025 significantly underperformed expectations, primarily due to higher-than-anticipated administrative expenses. The 3QFY25 core net profit declined by 47% year-on-year to RM1.5 million. This brought the cumulative 9MFY25 core net profit to RM6.8 million, which was 52% below the bank’s estimates and 57% below consensus. This discrepancy largely stemmed from approximately RM2 million in one-off administrative costs associated with the establishment of new subsidiaries, including Food Life SB, Food Life Pte Ltd, and Hong Yun Vegetables & Fruits SB.

Operational Highlights and Margin Expansion

Despite the earnings shortfall, the company demonstrated robust revenue growth. 3QFY25 revenue increased by 7.2% year-on-year to RM32.9 million, driven by strong performance in the wholesale distribution segment (+8.8% YoY) and a notable surge in export sales to Singapore (+42.9% YoY). Export sales now contribute 37% to the company’s total revenue. The report also noted a positive development in gross profit margin, which expanded by 3.4 percentage points to 24.8% in 3QFY25 (from 21.4% in 3QFY24). This expansion was primarily attributed to the higher margins fetched from increased export sales to Singapore.

Future Outlook and Recommendation

Looking ahead, the investment bank maintains an optimistic view on the company’s prospects, with the ongoing expansion of its Senai Central Distribution Centre (CDC) identified as a key growth driver. Approximately half of the additional capacity from this expansion is expected to be allocated to meet the rising demand from Singapore. The company is also actively pursuing the expansion of value-added services, such as fresh-cut and pre-packed vegetables, to capitalize on growing consumer preferences for convenience, which is anticipated to further improve margins. Additionally, the company is poised to benefit from government initiatives, including the National Agrofood Policy 2.0, aimed at enhancing food security and promoting healthy dietary habits, which are expected to stimulate greater demand for vegetables.

The investment bank has revised its earnings forecast for FY25F downwards by 25% to account for the one-off administrative expenses. Despite this adjustment, it maintains its “Outperform” call and a target price of RM0.50, based on an estimated 15x FY26F Price-to-Earnings (PE) multiple.