Malacca Securities sets Farm Price’s fair value at 85% premium ahead of IPO

PETALING JAYA: Malacca Securities has ascribed a fair value of 44.5 sen per share for Farm Price Holdings Bhd, which marks a premium 85% from its initial public offering (IPO) price.

Notably, the IPO price was recently fixed at 24 sen.

Vegetable distributor Farm Price, which aims to raise RM24.5mil from its IPO, is set for its listing on the ACE Market on May 14.

In a non-rated report, Malacca Securities also said that Farm Price’s bottomline in the financial years of 2024 and 2025 (FY24-25) are projected to increase by 16.6% and 25.1% to RM10.1mil and RM12.7mil respectively.

This will be supported by the planned increase in operating shifts to meet customer demand.

The research house further noted that the planned utilisation of IPO proceeds is partly to fund the construction of new facilities, which expands the current Senai Centralised Distribution Centre (SCDC), and the purchase of new equipment and logistics fleet.

“The expansion facilities are targeted to be operational by FY26, adding about 54,000 square feet (sqft) operational area, 10k sqft ambient warehouse area and will increase the capacity of cold room facility by the addition of about 35% in pallet capacity to about 40,000 pallets a year.

“Therefore, we have a substantial basis for significant growth to Farm Price’s topline moving forward.”

Malacca Securities said that Farm Price had seen a lower gross profit margin from FY20-22 due the nature of the business, whereby Farm Price had to absorb vegetable cost increases that occur after signing contracts with its customers.

“However, going forward, we believe that the vegetable prices will normalise, barring any unforeseen circumstances such as lockdowns from health pandemics, shipping delays and heightened geopolitical tension.

“Thus, we anticipate margins of Farm Price should remain relatively stable, comparable to FY23,” it added.

A unique advantage of Farm Price, according to Malacca Securities, is that it can take advantage of lower production costs by virtue of having operations in Malaysia.

In addition, the fact that SCDC’s operations are located in the southern region provides a short delivery time, which preserves the product’s freshness.

“Furthermore, we are aware that Farm Price is currently in talks with potential customers, drawing on its competitive advantages and strong track record.

“We have a strong conviction on Farm Price to secure more customers in Singapore going forward,” it said.