1Q2026 Earnings Update
Fan Milk Plc (“FML”) released its unaudited 1Q2026 financial results, reporting a 14.6% y/y growth in net profit to GHS 27.6mn in 1Q2026. The growth in profit was mainly driven by a 32.8% y/y surge in revenue to GHS 321.6mn and a 15.0% y/y increase in finance income to GHS 3.9mn. We believe improved distribution reach through Project Kilimanjaro, coupled with sustained demand across major product categories, supported revenue growth during the period. Cost of sales increased by 13.1% y/y to GHS 171.4mn, despite a 58.2% y/y plunge in cocoa futures, a modest 7.3% y/y rise in the price of skimmed milk powder and a 41.2% y/y appreciation of the cedi against the US Dollar in 1Q2026. We believe the continued expansion of the company’s cold chain infrastructure has started yielding topline benefits by supporting stronger product availability and deeper market penetration. However, the resulting growth in sales volumes has also translated into higher cost of sales. Operating expense surged by 50.5% y/y to GHS 90.8mn, despite the single digit 3.4% average inflation in 1Q2026, largely due to a 67.6% y/y surge in sales and distribution cost to GHS 56.1mn and a 33.9% y/y rise in administrative expenses to GHS 26.9mn. Overall, we expect investments under Project Kilimanjaro, borehole installation initiatives, and other revenue-suporting initiatives to further enhance operational resilience, support broader outlet coverage, and gradually improve revenue mix towards higher-value dairy SKUs, thereby strengthening revenue quality over time. However, we remain cautious on the earnings trajectory, as persistent cost pressures, largely related to execution of project Kilimanjaro, caps earnings growth. With limited visibility on rapid efficiency gains and utilisation improvements in the immediate term, we expect operating leverage to remain subdued, leaving downside risk to profitability if cost escalation continues to outpace revenue conversion. While the growth narrative remains intact, we maintain our fair value of GHS 9.46 from our FY2025 report, with a SELL bias given the risk that earnings expansion will lag the pace of cost escalation in the immediate term with current valuation already reflecting near-term earnings.