HOME-GROWN Farm Fresh Bhd, the largest integrated dairy producer in Malaysia, debuted on the Main Board of Bursa Malaysia at a commendable RM1.70 which was a premium of 35 sen or 26% over its initial public offering price (IPO) of RM1.35.
At time of writing (11.02am), Malaysia’s largest IPO listed since June 2021 was trading at RM1.82, up 47 sen or 34.81% with 225.81 million shares traded which makes the counter the most actively traded stock. At its current price, Farm Fresh’s market capitalisation stands at RM3.38 bil.
Farm Fresh through its public issue portion of its IPO raised RM301 mil of which RM140 mil is intended for establishing a new manufacturing hub, a new dairy farm and an integrated facility in Malaysia.
Another RM60 mil has been earmarked for the expansion of its production facility in Australia, regional expansion outside Malaysia (RM40 mil), working capital (RM40.8 mil) while RM20.2 mil has been allocated for listing-related expenses.
Farm Fresh’s current stock price is above UOB Kay Hian Research’s target price of RM1.60 which is pegged to 30.5 times the company’s FY2023F price-to-earnings ratio (PE).
Initiating coverage on Farm Fresh with a “buy” call, the research house said its PE peg is derived from the overall Asia dairy average PE to growth ratio of 1.7 times Farm Fresh’s three-year earnings compound annual growth rate (CAGR) (FY2020-2023) of 17.9%.
“Farm Fresh offers (i) a far more attractive growth outlook of 17.9% vs Malaysia – Consumer (7.2%) and Asia – Developed (3.1%) dairy peers; and (ii) superior operating margins of 20.6% for FY2019-2021 that far outperformed Dutch Lady Milk Industries Bhd’s 13.6%,” opined analyst Philip Wong in an initiating coverage note.
“Should Farm Fresh make headway into key export markets and sustain its margins amid spiralling costs, it could re-rate to valuations closer to Nestle (M) Bhd (51.6 times) and QL Resources Bhd (48.8 times).”
Moving forward, UOB Kay Hian expects a 25% discount to these consumer darlings appears to be within reach given Farm Fresh’s superior operating margins and growth outlook.
“This implies a PE peg of 38 times and a blue sky target price of RM2,” added the research house. – March 22, 2022
