• MYR0.37 FV based on 8x FY24F (Apr) P/E. PT Resources will raise MYR48.6m from its IPO to primarily fund working capital and a new cold storage warehouse. Notwithstanding the sharp surge in export sales – largely driven by the China market (>7x YoY) – in FY22, we opt to be conservative with our sales growth assumptions, until a more sustainable sales trend emerges. We regard its IPO valuation as fair, and largely on par with the FBM Small Cap Index and its closest market peer.

• Strategic location = competitive advantage. The largest volume and value of fish landings in West Malaysia are from Kuantan, mainly due to work done by Malaysian Fisheries Development Authority (LKIM) there. The close proximity of Kuantan Integrated Fish Processing Park (KIFPP) to the LKIM complex allows PT Resources to boost efficiency – by reducing the delivery costs and time in supply procurement. Also, KIFPP is a project identified under the East Coast Economic Region Development Council (ECERDC) economic development masterplan to spearhead the growth of seafood processing and related downstream industries in the East Coast Economic Region (ECER). With this, PT Resources has been granted a 100% tax exemption on the processing and trading of frozen seafood products.

• Major certifications open the door to big export markets. The group has obtained several important quality and food safety management certifications including ISO 22000:2005, Hard Analysis Critical Control Point (HACCP), Good Manufacturing Practice (GMP), MeSTI Secure Food Certification Scheme and halal certification from Department of Islamic Development Malaysia (JAKIM). Meanwhile, Chinese Academy of Inspection and Quarantine (CAIQ) and Saudi Food and Drug Authority (SFDA) registrations have also paved the way for PT Resources to tap onto more sizeable opportunities abroad. In FY22, its export sales surged 155% YoY to MYR199.7m, thanks to a successful penetration into the China market, while Saudi Arabia was the major export sales driver in FY20-22 (Figure 5).

• Well-equipped for production of quality frozen seafood products. It can consistently deliver quality products to customers, due to its complete processing facilities – individual quick freeze (IQF) units and semi-contact blast freezers are vital in producing individually frozen units of seafood products from a whole frozen block of multiple types of seafood. This benefits end-customers, when it comes to consuming the exact quantity required. It also ensures a consistent supply of seafood by having a diversified network of suppliers comprising local and international wholesalers, aquaculture farms and fishing enterprises, in order to fulfil the supply-demand gap stemming from seasonal fishing activities and weather conditions.

• Earnings forecast and valuation. We project a 3-year earnings CAGR of 16.2% and ascribe a P/E of 8x to FY24F earnings to derive our FV of MYR0.37. The valuation is largely in line with the valuations of FBM Small Cap Index and the closest available market peer, CCK Consolidated. Risks: Termination of agreements on operations at the KIFPP processing facility, revocation of certifications, labour shortage, disruptions in the supply of raw materials, and adverse FX rate changes.

Source: RHB Securities Research - 12 Sept 2022