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. The rating outlook is stable. The outstanding under the rated programme was RM300.0 million as at end-February 2025.

The rating affirmation reflects Farm Fresh’s healthy market position in the domestic dairy industry, stemming from the group’s vertically integrated operations and strong operating track record. The group has a growing market share in the domestic chilled ready-to-drink (RTD) segment, recorded at 60.0% for the 12 months ended December 2024, from 50.0% as at end-2022. It has a diversified range of dairy products that are produced internally as well as through recent acquisitions. The rating also considers the group’s improving financial performance and its ability to maintain a low-to-moderate leverage position even after embarking on product expansions and acquisitions. Moderating the rating are the risks associated with biological assets and product expansion as well as potential margin pressures should raw material prices increase sharply.

For the first nine months of financial year ending March 31, 2025 (9MFY2025), Farm Fresh registered a 7.7% y-o-y increase in annual raw milk production capacity to 34.7 million litres, largely due to the increase in dairy herd size to 12,903 cattle from 11,852 as of March 31, 2024. The group has five farms in Peninsular Malaysia and one in Victoria, Australia; of these, it will expand its Muadzam Shah farm in Pahang by 500 acres to increase its herd size by another 3,000 cattle which would increase raw milk production by 7.0 million litres. The expansion, estimated to cost RM50.0 million and funded internally, is expected to be completed in 2026.

Farm Fresh has strengthened its position in the hotel, restaurant, and café (HORECA) industry through its chilled milk segment. It has also expanded its product line with the introduction of butter and cultured milk. The group has also embarked on consumer-packaged goods (CPG) ice cream manufacturing operations which will add on to its Sin Wah and Inside Scoop ice cream brands that were acquired in FY2024. The group’s new plant in Bandar Enstek, Negeri Sembilan, scheduled for completion in 2H2025, will focus on ice cream production given the rising demand.

MARC Ratings notes that the group has largely funded its expansion from initial public offering (IPO) proceeds and still has approximately RM110.3 million of listing proceeds that would provide liquidity for future expansion without having to incur additional borrowings. As a result, total borrowings have remained stable, standing at RM406.0 million as at end-9MFY2025, with a gross debt-to-equity ratio of 0.57x (FY2024: 0.59x). Excluding the remaining proceeds from the IPO, the group has cash and bank balances of RM54.4 million that provide additional liquidity.

In 9MFY2025, revenue rose 23.9% y-o-y to RM737.5 million, driven by higher sales of milk, milk powder products and CPG ice cream, as well as the full-year contribution from the recent acquisition of a 65.0% stake in Inside Scoop and 70.0% stake in Sin Wah. Operating profit grew in line with revenue growth, with margin rising to 13.4% from 9.5% a year prior, from higher sales of high-margin products, lower dairy raw material costs and reduced losses from its Australian operations.