FFB: Robust Financial Performance Driven by Strategic Cost Management and Product Mix
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A major food products company has reported stronger-than-expected financial results for the first half of FY26, largely attributed to effective cost management and a favorable product mix. This positive performance has led analysts to maintain a constructive outlook, with RHB Investment Bank upgrading its recommendation to “BUY”.
Performance Review
For the first half of FY26, the company’s core net profit surged by 30% year-on-year to MYR68 million, significantly exceeding both analyst and consensus estimates, accounting for 55% and 49% respectively. Sales for the period rose by 13%, bolstered by successful new product launches in the ice cream and powder categories, alongside continued strong traction from ultra-high temperature (UHT) products.
The Gross Profit Margin (GPM) expanded by 1.5 percentage points, reaching 33.4%, primarily driven by an improved product mix and stable input costs. Quarterly performance further underscored this strength, with 2QFY26 revenue jumping 13% quarter-on-quarter to MYR295 million, and core net profit increasing by 16% quarter-on-quarter to MYR37 million. This was significantly aided by school milk sales and the successful maiden export sales to Cambodia.
Strategic Advantages and Challenges
The impressive margin resilience was partly due to strategic research and development efforts aimed at reducing the company’s exposure to volatile whole milk powder (WMP) prices. This has successfully alleviated earlier concerns about potential margin compression risks.
While the company demonstrates strong operational performance, potential risks to its outlook include major delays in crucial expansion plans and a sharp rise in input costs. Furthermore, early-stage losses have been noted in new market entries, such as the Philippines operations, which recorded a loss after tax of MYR3.6 million in 2QFY26 due to initial investments required to establish market presence. Management, however, expects improved performance in these developing markets towards a breakeven point in subsequent quarters.
Future Outlook and Expansion Strategy
The company’s growth momentum is expected to be sustained by a deepening market penetration of new products and the introduction of new ice cream production lines. Margins are projected to remain elevated, supported by stable input costs and a continuously improving product mix.
A significant strategic development is the impending completion of its Bandar Enstek ice cream plant, which is set to triple the company’s capacity and begin commercial operations by mid-2026. Regionally, the company is making successful inroads into the Cambodia market, capitalizing on geopolitical tensions there and achieving encouraging initial results. Positive progress in the Philippines expansion and potential ventures into the populous Indonesian market are also anticipated to diversify revenue streams and underpin longer-term earnings prospects.
Analyst’s View
Reflecting confidence in these developments, RHB Investment Bank has upgraded its rating for the company to “BUY” from “Neutral”, raising its target price to MYR3.03 from MYR2.08, indicating a 17% upside. This revised target price implies a 33x FY27F P/E, representing a 20% discount to large-cap consumer staple peers, and reflects improved earnings visibility, reduced WMP exposure, and promising long-term regional expansion.
