Analysts positive on Farm Fresh's move to acquire The Inside Scoop

KUALA LUMPUR - Investment analysts have maintained a positive stance on Farm Fresh Bhd (FFB) following the dairy producer’s proposal to acquire a controlling stake in ice-cream company The Inside Scoop Sdn Bhd (TISSB).

Yesterday, FFB announced the proposed acquisition of a 65 per cent stake in TISSB, an ice-cream maker with 37 retail outlets nationwide, via share purchase and subscription for a total of RM83.9 million.

In a research note today, Maybank Investment Bank Bhd (Maybank IB) said the acquisition could lift FFB’s net profit by RM3.8 million per annum, while offering various positive business synergies across its existing value chain and potential foray into the consumer-packaged goods (CPG) ice-cream market.

"With retail ice creameries as a new revenue stream, this offers various businesses synergies to FFB in the form of product cross-selling opportunities, regional store expansions and wider product distribution network capabilities.

"As FFB has previously indicated its intention to penetrate the domestic CPG ice-cream market once its new manufacturing hub in Bandar Enstek, Seremban, is completed, TISSB’s founders will also be key assets in leading FFB’s ice-cream division,” the bank said.

Maybank IB is maintaining a "buy” call on FFB with an unchanged target price of RM1.75.

Similarly, CGS-CIMB Securities said the proposed acquisition is earnings accretive in nature as well as offering various business synergies between both companies.

The brokerage said the valuation is undemanding based on TISSB's 2022 price-to-earnings ratio (PER), at a 59.5 per cent discount to Malaysia's overall consumer sector’s 2022 PER of 40.7 times, and at a 57 per cent discount to FFB’s 2022 PER.

In addition, it said, FFB has no issue funding the cash portion of this purchase with its net gearing of 0.1 times at the end of its second quarter ended Sept 30, 2022.

"We reiterate a ‘hold’ call, with an unchanged target price of RM1.65. In our view, the current valuations have largely priced in FFB’s growth prospects and the growing demand for fresh milk goods in the Asian region,” it said.

At 12.30 pm, FFB shares rose one sen to RM1.60 each, with 1.63 million units transacted. - BERNAMA