KUALA LUMPUR (June 15): ACE Market-bound instant beverage premix manufacturer Orgabio Holdings Bhd is seeking to raise RM29.97 million from its initial public offering (IPO) for business expansion in its direct selling segment and export market after seeing strong demand for the past four years.

During its virtual prospectus launch on Wednesday (June 15), the company said most of the proceeds, RM16 million or 53.4%, is allocated for the construction of its new factory in Semenyih, Selangor, which is estimated to be completed by August 2023, to double its current manufacturing capacity of annual output to 230 million sachets. 

“We see the demand for the instant 3-in-1 beverages as people’s choice during the movement control order (MCO) [implemented to curb the Covid-19 pandemic] because it is convenient and easy to prepare at home. 

“Based on the current high inflation and price of goods becoming expensive, people also considered buying instant 3-in-1 beverages because of reduced spending power,” Orgabio chief executive officer Ean Yong Hien Voon told the press after the prospectus launch. 

Orgabio is principally involved in the provision of instant beverage premix manufacturing services to third party brand owners, contributing 99% of its revenue. The company also has its house brands EveryDay and BrogaHill, mainly sold in pharmacies, clinics and hospitals.

Its main customers include local and foreign food and beverage companies, supermarket and hypermarket operators, pharmaceutical companies and direct selling companies.

Orgabio founder and executive deputy chairman Datuk Ean Yong Tin Sin said the company plans to expand its customer base in the direct selling segment, expand export sales as well the range of product offerings and market presence of its house brands.

He said that in the past four financial years ended June 30, 2018, 2019, 2020 and 2021, Orgabio’s sales to direct selling companies contributed between 61.4% and 80.6% to the group’s revenue. As at May 17, 2022, it has nine local direct selling companies as its customers.

Orgabio’s export markets include Australia, China, Hong Kong, India, Japan, Myanmar, Papua New Guinea, Russia, Taiwan, Singapore, Trinidad and Tobago and the United Arab Emirates. 

Orgabio will further utilise RM8.14 million (27.2%) of the proceeds for working capital requirements, mainly to purchase supplies used for the manufacture of its products. 

Another RM2.23 million (7.4%) is allocated for the acquisition of new machinery to support and enhance the efficiency of its existing manufacturing activities, while the remaining RM3.6 million (12%) is for estimated listing expenses.

The IPO exercise entails the public issue of 96.67 million new ordinary shares in Orgabio, representing 39% of its enlarged share capital of 247.9 million shares, at an issue price of 31 sen per share, said to be a price-earnings ratio (PER) of 10.1 times based on its performance for the financial year ended June 30, 2021 (FY21). 

Orgabio is scheduled to be listed on the ACE Market of Bursa Malaysia Securities Bhd on July 5, 2022 and is expected to have a market capitalisation of RM76.8 million. Applications for Orgabio’s IPO will close on June 21.

M&A Securities Sdn Bhd is the principal adviser, sponsor, underwriter and placement agent for the IPO exercise.

The company was initially slated to be listed by December 2021 when Orgabio inked the IPO underwriting agreement with M&A Securities in September 2021. 

Hien Voon explained that the delay stemmed from the late issuance of the new certificates of the Good Manufacturing Practice (GMP) and Hazard Analysis and Critical Control Point (HACCP) by the Ministry of Health during the MCO.  

Of the new shares, 12.39 million shares (5%) will be made available to the Malaysian public, half of which will be allocated for public investors and another half for Bumiputera public investors, while 6.2 million shares (2.5%) will be for eligible directors and employees as well as persons who had contributed to the success of the group.

The remaining 78.08 million shares (31.5%) will be privately placed out to selected Bumiputera investors approved by the Ministry of International Trade and Industry and selected investors.

The company noted that the IPO has secured traditional healthcare group Hai-O Enterprise Bhd, which Orgabio has a working relationship with for more than 10 years, as its cornerstone investor.

At this moment, the company is yet to have a dividend policy. 

Orgabio experienced a profit uptrend as it posted a record RM7.6 million net profit for FY21 compared with RM5.6 million for FY20 and RM2.3 million for FY19. The company’s revenue for FY21 was also the highest in the past three years at RM59.1 million, compared with RM39.4 million for FY20 and RM31.7 million for FY19.

For the first half of FY22, Orgabio has recorded RM2.7 million in net profit and RM34.8 million in revenue. 

Commenting on the fluctuation in raw material prices, Tin Sin said Orgabio has begun to pass on the increase in cost of supplies to its customers by increasing the selling prices progressively in order to improve the company’s gross profit margins. 

“We provide our customers with three months' advanced notice on the changes in prices and upon agreement, new purchase orders with the adjusted pricing will be issued for future orders,” he said.

In regard to the weakening Malaysian ringgit, Hien Voon added that part of the ingredients Orgabio purchases from overseas such as Vietnam and China are paid through the company’s multi-currency account, therefore with no exchange to the ringgit. 

Orgabio, however, is more affected by the new RM1,500 minimum wage rule set by the Malaysian government effective May 1, 2022, as the company estimated an additional cost of RM85,000 per year due to the rule.