KUALA LUMPUR (May 2): Apex Securities Bhd has recommended investors to “subscribe” to ACE Market-bound Farm Price Holdings Bhd at an initial public offering (IPO) price of 24 sen and a fair value of 42 sen by pegging financial year 2025 (FY2025) forecast core earnings per share of 3.2 sen to price-earnings (PE) of 13 times (75% potential upside from IPO price).
In a note on Thursday, the research house said its valuation is based on a slight discount to Bursa Malaysia’s consumer products and services sector forward PE of 15.0 times for FY2024 and 14.3 times for FY2025, due to Farm Price’s smaller market capitalisation.
Apex said it likes Farm Price for its established position in the wholesale and distribution of fresh vegetables market, commanding approximately 0.8% of market share in the fresh vegetables industry in Malaysia.
“Future growth is expected to emanate from (i) business expansion of Senai Centralized Distribution Centre, (ii) increasing value-added services, particularly towards the Singapore market and (iii) ramping up worker shifts from 12 to 24 hours to cater for strong demand given that existing plant utilisation is already running at approximately 99.0%.
“While Farm Price does not adopt a formal dividend policy, we expect the group to maintain a leaner balance sheet as evident in recent years (gearing level fell from 167.5% in FY2021 to 52.8% in FY2023),” it said.
Apex said that still, it does not discount the potential reward of a 0.5 sen per share dividend in FY2024 and a 0.6 sen per share dividend in FY2025, representing a below 20% pay-out from projected core net profit.