Increase in Demand for Farm Price Products

Farm Price Holdings Bhd’s revenue is expected to grow at 8.9%, 9.2% and 10.3% for financial year 2024 (FY24), FY25 and FY26, respectively, led by the increased demand for its products from Singapore and the favourable exchange rates.

Its net profit growth is expected at 9.1%, 11.3% and 13.2%, respectively, for the three financial years, said TA Research.

The company, en route to a listing on Bursa Malaysia, is a Johor-based company involved in the wholesale and retail of fresh vegetables, as well as food and beverage products.

It aimed to raise RM24.5mil from its initial public offering (IPO), which entailed a public issue of 102 million new shares and an offer for sale of 33 million existing shares.

TA Research said most of Farm Price’s peers in the country are privately owned. Therefore, it ascribed a target price earnings ratio of 12 times to its FY24 earnings per share (EPS), resulting in a fair value of 25 sen a share due to its smaller market capitalisation compared with its peers in China.

It viewed the price earnings ratio multiple as fair and reasonable, considering its double-digit gross profit margin and potential growth in Singapore’s vegetable wholesale segment.

Mercury Research subscribed a “fair” value of 29 sen a share based on 13 times the FY24 EPS, translating to 21% upside to the IPO price.

It said despite the weaker ringgit (most of its fresh vegetables are imported), Farm Price maintained healthy gross margins of 14% to 20% thanks to inelastic demand and frequent pricing adjustments.

The lower margins recorded in FY21 and FY22 were mainly dragged by labour shortages and higher shipping costs during the Covid-19 pandemic.

Since then, gross margins had rebounded considerably to 20% in FY23, underpinned by better operation efficiency and favorable supply conditions.

It said the group can sustain its gross margins at around 19%, with higher margins from Singapore sales (nearly twice the margins of domestic sales) help to mitigate potential cost increases.

The research house said its FY24 to FY26 projections are based on the key assumptions as it expects the wholesale segment to grow by 9%, 9.3% and 10.3% annually, driven by the favourable exchange rate between the Singapore dollar and ringgit.

Gross profit margin is expected to remain stable at 20% throughout FY24, FY25 and FY26.

Cold room capacity is projected to reach 40,000 pallets per year by FY26, facilitating storage capabilities.

Mercury Research said Farm Price had positive growth trend going forward. But it also cited risk factors that include labour shortage, fluctuation in fresh vegetable prices and foreign-exchange risks.