MARC Ratings has affirmed its AA-_IS rating on Farm Fresh Berhad’s Islamic Medium-Term Notes (IMTN) Programme of RM1.0 billion under the Shariah principle of Wakalah Bi Al-Istithmar (Sukuk Wakalah Programme). The rating outlook is stable. The outstanding under the rated programme was RM625.0 million as at end-March 2026.

Farm Fresh’s leading market share of 60.0% in the domestic chilled milk segment, strong operating track record, and diversified portfolio of downstream products distributed via various channels are key rating drivers. Reflective of these strengths, cash flow generation has been growing steadily over the years. The rating agency also views positively the group’s ongoing efforts to enhance both its upstream and downstream operations that would strengthen milk supplies to support the deepening of its market presence and increasing product diversification. Moderating the rating are the risks associated with biological assets and product expansion as well as potential margin pressures in the event of increases in raw material and distribution costs.

During the first nine months of financial year ended 31 March 2026 (9MFY2026), Farm Fresh’s raw milk production increased 13.4% y-o-y to 31.0 million litres, due to the full operation of its Taiping farm. For its Malaysian farms, Farm Fresh recorded an average milk yield of 19.5 litres per cow during the period. A larger herd size followed the expansion of its Muadzam Shah farm by 500 acres, completed in March 2026. An additional 1,200 dairy cows are expected to arrive by October 2026. Further to the Malaysian operation expansion, Farm Fresh is constructing a pasteurised and UHT milk production plant in Cambodia, in a joint venture (JV) with two local partners, following its foray into the country in July 2025. Farm Fresh will spend about RM45 million to acquire equipment and machinery through 2027. One of the local JV partners, which holds a 15% stake in the Cambodian JV, has completed the construction of the factory building. Operating a processing and packaging facility locally would reduce logistics cost as raw milk would be sourced directly from Australia for the pasteurised products. The Group is also considering setting up another farm, with a few areas having been shortlisted. Upon completion of the new farm, Farm Fresh will then be able to produce fresh milk to be processed at the factory.

Farm Fresh’s product offerings continued to expand during 9MFY2026 to include a chocolate malt drink, consumer packaged goods (CPG) ice cream, butter, and cultured milk. The chocolate malt drink, alongside the infant milk Farm Fresh Grow that was introduced in FY2024, are sold as healthier dairy options for children, and have been well-received. Its own CPG ice cream has also been receiving a positive response since being launched in August 2024. To meet growing demand, the group’s new plant in Bandar Enstek, Seremban, scheduled for completion in August 2026, will focus on ice cream production. This new plant will feature ice cream extrusion, rotary, and cone lines, with a daily combined production capacity of 1.0 million pieces, compared to the current 300,000 pieces per day at the Taiping plant. Butter products are being produced at the Taiping plant, while cultured milk goods are being manufactured at its Larkin facility. Farm Fresh aims to leverage its relationship with existing customers in the hotel, restaurant, and café (HORECA) segment in marketing its butter and cultured milk products.

Moderating the strengths are execution risks associated with its ongoing expansion plans, but these would be mitigated by the management’s experience in diversifying product lines and expanding the scale of its operations. Total borrowings in 9MFY2026 increased to RM508.6 million, with a gross debt-to-equity ratio of 0.63x (9MFY2025: RM406.0 million; 0.57x). Proceeds from the additional borrowings have largely been used to fund the Muadzam farm expansion. Planned capex of RM80 million annually over the next two years for its Malaysian operations could be partially funded internally. Separately, for Cambodia, there will be RM55 million in planned capex in the coming financial year. Cash and bank balances totalled RM78.9 million as of December 2025. Farm Fresh issued an additional RM200.0 million notes from the sukuk programme in February 2026 to refinance an equivalent amount of maturing notes in May 2026.

In 9MFY2026, Farm Fresh posted a 14.0% y-o-y revenue growth to RM840.6 million. Cash flow from operations (CFO) grew in line with revenue growth and margin improvements. While showing lower coverage at 7.85x, CFO interest coverage remained commensurate with the rating band. The growth in revenue was primarily driven by stronger sales in Malaysia, from the positive response to new products, as well as higher supply for the government’s school milk programme. Inroads into the Cambodian and Philippine markets also supported revenue growth.