PUBLICINVEST Research has accorded Farm Price Holdings Bhd which is en route to a listing on Bursa Malaysia’s ACE Market a fair price of 30 sen or a 25% premium over the 24 sen initial public offering (IPO) price of the Johor-based wholesaler and distributor of fresh vegetables, food and beverage (F&B) products and other groceries.
The fair value is derived based on 11 times Farm Price’s FY2025F earnings per share (EPS) which implies a potential upside of 25%.
“As Farm Price’s peers are private companies that are not listed on Bursa Malaysia, we benchmark the company to the Bursa Malaysia Consumer Product Index average,” PublicInvest Research pointed out in its IPO Note.
“While the average PE (price-to-earnings ratio) of the Consumer Product Index is 16.3 times, we ascribe a 30% discount to Farm Price given its smaller market capitalisation. We believe the valuation is justified given the company’s potential double digit growth in earnings.”
Farm Price which unveiled its IPO on April 24 plans to enlarge its operational facilities to expand its market coverage for business growth as well as enhance its supply chain in fresh vegetables.
Its IPO is expected to raise about RM24.5 mil from the issuance of 102 million new shares.
Besides utilising 43.2% of the proceeds for working capital, 26.1%, 8.2% and 6.5% of the IPO’s proceeds are allocated for construction of new facilities; purchase of machinery, equipment and logistics fleet as well as planned regional distribution and procurement centre respectively.
Farm Price posted a 21% year-on-year (yoy) revenue growth to RM114.20 mil during its financial year ended Dec 31, 2023 while its profit after tax surged 83.3% yoy to RM8.7 mil.
At a glance, PublicInvest Research expects Farm Price’s growth to be driven by the following:
- Construction of additional operational and related facilities in Senai, Johor;
- Expansion of value-added processing areas;
- Purchase of machinery and equipment;
- Expansion of transportation fleet;
- Establishment of additional regional distribution centre; and
- The setting up of a sales and marketing office in Singapore.
“The key drivers may include (i) uptick in global production volume of fresh vegetables; (ii) uptick in production value and volume of fresh vegetables in Malaysia; and (iii) Malaysia’s growing import and export value of fresh vegetables,” projected the research house.
“The key downside risks include (i) fluctuations in prices of fresh vegetables; (ii) competition; (iii) fluctuations in foreign exchange rate; (iv) inability to pass on the increases in the prices of fresh vegetables to customers; and (v) non-compliance with the laws and regulations applicable to its business.” – April 30, 2024
