Mercury Securities has a “Subscribe “recommendation on Orgabio Holdings Bhd with a target price of RM0.38 based on FY23F EPS of 3.5 sen and a PE of 10.9x which is a 30% discount to the peer’s average.
It said that it likes the stock for its attractive expansion plans, solid track record on the back of a growing manufacturing sales value of coffee, tea, milk, and cocoa beverages in Malaysia, which increases from RM13.83 billion to RM16.05 billion, at a 7.73% CAGR from 2018 to 2020.
The stockbroking firm said that the company provides a full customization option for the formulation of instant beverage premixes for its customers and is also the third-largest instant beverage premix manufacturer (for third-party brand owners in Malaysia.
The company has a strong track record in the industry with its notable customers, with business relationships spanning up to 16 years. The company generated approximately RM48.4 million in revenue from its top customers, representing 81.9% of the total revenue in FY21.
It said that the company plans to construct a new factory in Semenyih by August 2023 and purchase new machinery that will reduce reliance on manual labour and increase manufacturing capacity.
This is expected to improve efficiency and grow its customer base in the direct selling segment and support their expansion of export sales. The direct selling segment currently contributes 80.6% of the Group’s total sales in FY2021.
While export sales contribute 21.9% of the Group’s revenue in 1HFY22. Their diversified reach for export markets includes countries such as Singapore, China, UAE, Japan, Russia, Taiwan, and Hong Kong.
Bright future for instant beverage premix industry. The company saw a 24.3% and 50.0% YoY revenue growth in FY20 and FY21 respectively. The key driver for growth is largely attributed to the growing need for convenience in the Malaysian market and the government’s initiative to promote
Halal manufacturing products. Internationally, Malaysia is one of the world’s top 5 exporters of coffee extracts representing 7.49% of global exports in 2020. The company expects the global demand for coffee premixes to grow in the future.
