Malacca Securities in its IPO Notes for the upcoming listing of Farm Price Holdings Berhad indicated a fair value of RM0.445, suggesting a potential upside of 85.4%.
This view was based on the group’s business trajectory, Farm Price’s cold room facilities are running at a >95% utilization rate. In the short term, it plans to increase the number of processing shifts in the Senai Centralised Distribution Centre (SCDC). This can be carried out despite the high utilization rate, as FPHB plans to increase the frequency of deliveries, rent ad-hoc on site refrigerated containers, as well as renting temporary warehouses as needed. This is to ensure that FPHB is able to store and deliver more vegetables to meet demand, which will provide a significant boost to the topline and bottomline.
New production facilities to improve floor space by 90%. The planned utilization of IPO proceeds is partly to fund the construction of new facilities which expands the current SCDC and the purchase of new equipment and logistics fleet. The expansion facilities are targeted to be operational by FY26, adding ~54k sqft operational area, 10k sqft ambient warehouse area and will increase the capacity of cold room facility by the addition of c.35% in pallet capacity to ~40k pallets a year.
Therefore, the house said it has has a substantial basis for a significant growth to FPHB’s topline moving forward. Comparable margins going forward. FPHB had seen a lower GP margin from FY20-22 due the nature of the business, where vegetable pricing contracts are signed which fixes the price that FPHB sells its vegetables to some of its customers, while in the same period CPI for vegetables increased substantially, therefore FPHB had to absorb the cost increase. However, going forward, the house believes that the vegetables prices will normalised, barring any unforeseen circumstances such as (i) lockdowns from health pandemics, (ii) shipping delays and (iii) heightened geopolitical tension. Thus, Malacca Securities said it anticipates margins of FPHB should remain relatively stable, comparable to FY23.
FPHB has a strong track record having being in the industry for 20 years. A unique advantage FPHB has over competitors in Singapore is that FPHB can take advantage of lower production costs by virtue of having operations in the Malaysia, coupled with SCDC’s operations being located in the southern region providing a short delivery time which preserves the product’s freshness. This unique feature of FPHB vis-à-vis its Singaporean peers, makes FPHB much more competitive. Furthermore, we are aware that FPHB is currently in talks with potential customers, drawing on FPHB’s competitive advantages and strong track record, we have a strong conviction on FPHB to secure more customers in Singapore going forward.
