Maybank IB views the proposed acquisition of Inside Scoop by Farm Fresh as a positive move as it is earnings accretive and it offers various positive business synergies across FFB’s existing value chain and potential foray into the CPG ice cream market.
Yesterday, FFB announced that it had entered into a share purchase agreement with Edmund Tan Jun Hua, Wu Chuang Yang (Derrick), and Harsh Rajpal to acquire 53% equity stake of The Inside Scoop Sdn Bhd (TISSB) for MYR68.4m (via MYR48.4m cash and the balance MYR20m via the issuance of 13.2m new FFB shares at MYR1.52 each), and (ii) a share subscription agreement with TISSB for new TISSB shares representing 12% equity stake for MYR15.5m cash. TISSB will become a 65%-owned subsidiary of FFB upon completion of the proposed acquisition. Target completion is by 2QCY23.
The acquisition multiple equates to 16.5x PER (1-year trailing) which is below FFB’s 38x FY23E PER. Assuming TISSB’s FY22 profit after tax of MYR7.8m sustains, this acquisition could lift FFB’s net profit by MYR3.8m p.a. (Refer to Fig. 2). This acquisition will be subjected to shareholders approval. FFB plans to fund the cash consideration portion of the acquisition (MYR63.9m) from its IPO proceeds.
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, TISS’s founders will also be key assets in leading FFB’s ice cream division.
