Farm Price Holdings Berhad (FPHB, 0304) will be making its debut on Bursa Ace Market today. FPHB is involved in wholesale distribution and retail of fresh vegetables, F&B products, and groceries, primarily in Malaysia and Singapore. BUY with a fair value of RM0.42 based on FY25F PE of 13x, a slight discount to Bursa Malaysia’s consumer products and services sector forward PE of 14.5x.

FPHB distinguishes itself via a wide variety of fresh vegetables coupled with value-added services. Currently, the company operates approximately 980 SKUs of fresh vegetables, meeting diverse customers’ needs. The provision of prepacked and fresh-cut vegetables not only caters to convenience but also commands a higher profit margin.

In response to escalating demand and operational constraints, FPHB is strategically transitioning from 12-hour shifts to 24-hour operations to streamline delivery and storage processes. At present, the cold room facilities are operating at over 95% capacity thus FPHB are planning to augment processing shifts, enhance delivery frequency, and utilize on-site refrigerated containers and temporary warehouses to accommodate the surging demand.

As part of its expansion strategy, FPHB is undertaking the construction of new facilities to enlarge its central distribution center that will enhance its built-up area from 78,721 sq ft to 149,548 sq ft, scheduled for commencement in 1Q 2026. The new production facilities will expand its floor space by 90%, thereby enhancing cold room capacity by approximately 35%, positioning FPHB for substantial growth in the foreseeable future.

The fresh vegetable industry is integral to Malaysia's food security agenda, directly impacting sustenance, health, and cost of living. In 2022, the industry contributed 8.9% to the GDP of the agriculture sector, with food and non-alcoholic beverages comprising of 29.8% of the CPI weight in 2023. With a market size of RM7.6bn in 2023, the industry presents significant growth opportunities, supported by governmental focus and consumer demand for fresh produce. As such, FPHB stands to benefit from this favorable industry landscape.

We expect FY23-FY26F earnings to grow at a strong CAGR of 33%, underpinned by (i) the transition to 24-hour shifts to meet escalating demand, (ii) the expansion of value-added services, particularly targeting the Singapore market, and (iii) the expansion of the Senai Centralized Distribution Center. In addition, FPHB boasts a healthy balance sheet, with gearing levels falling from 2.66x in FY20 to 0.53x in FY23, a trend expected to be sustained post IPO.

Source: Rakuten Research - 14 May 2024

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