This article first appeared in Capital, The Edge Malaysia Weekly on December 2, 2024 - December 8, 2024

KLANG-based fertiliser company Cropmate Bhd (KL:CRPMATE) is set to debut on the ACE Market of Bursa Malaysia this week.

Priced at 20 sen per share, the company’s initial public offering (IPO) reflects a price-earnings ratio (PER) of 14.7 times, based on its earnings per share (EPS) of 1.36 sen for the financial year ended Dec 31, 2023 (FY2023). Upon its listing on Thursday, Dec 5, Cropmate will have a market capitalisation of RM147.6 million.

Its peers on Bursa Malaysia include Lotte Chemical Titan Holding Bhd (KL:LCTITAN), Ancom Nylex Bhd (KL:ANCOMNY), Hextar Global Bhd (KL:HEXTAR) and Imaspro Corp Bhd (KL:IMASPRO).

Cropmate aims to raise RM42 million from the issuance of 210 million new shares. Of this, 40.8% will be allocated to working capital, specifically for the purchase of input materials such as macronutrients and micronutrients. Another 39.8% will be used to fund the acquisition of factories housing its operations, 11.9% to cover listing expenses and 7.5% will go towards capital expenditure.

The company received 21,392 applications for 3.17 billion shares worth RM633.81 million from the Malaysian public, reflecting an oversubscription rate of 84.88 times over the 36.9 million shares on offer.

An offer for sale of 50 million existing shares by managing director Lee Chin Yok, his sons and non-independent executive directors Lee Cheng Seng and Lee Cheng Fei, as well as substantial shareholders Lau Sam Siong and Datuk Tan Chew Chin is expected to generate RM10 million.

In total, the public issuance and offer for sale represent 35.2% of Cropmate’s enlarged issued share capital of 738 million shares.

Hong Leong Investment Bank Bhd is the principal adviser, sponsor, underwriter and bookrunner for the IPO exercise.

Founded in 2018, Cropmate specialises in the formulation and blending of conventional and speciality fertilisers, as well as the trading of straight fertilisers and related products. Its diverse customer base includes plantation and orchard owners, fertiliser manufacturers and intermediaries such as traders.

Malaysia, as one of the world’s leading palm oil producers, is Cropmate’s primary market, contributing 99.3% to its revenue in FY2023. The remaining revenue came from Cambodia, Singapore, Sri Lanka and Papua New Guinea.

For FY2023, Cropmate’s profit after tax (PAT) declined 31.21% to RM10.05 million, from RM14.62 million in FY2022, as revenue dropped 19.52% from RM188.3 million to RM151.55 million. This was mainly attributed to the decline in average selling price (ASP) coupled with the lower sales volume of fertilisers. Its PAT margin fell to 6.6% in FY2023 from 7.8% in the previous year.

In a Nov 21 note, TA Securities valued Cropmate at 21 sen per share, based on a PER of 11.6 times its estimated EPS for calendar year 2025. The valuation, it said, aligns with the weighted average PER of comparable companies in the sector.

TA Securities highlighted that sustained price increases in agricultural products, including crude palm oil (CPO), could drive higher agricultural output and boost demand for fertilisers.

However, the research firm cautioned that the elevated CPO prices may not last. It projects a decline from an average of RM4,000 per tonne in 2024 to RM3,800 per tonne in 2025 as global edible oil supplies are expected to rise, intensifying market competition. The increase in supply may exert downward pressure on prices despite growing production levels.

“We expect the group to achieve net profit growth of 10.4% and 20.3%, reaching RM11.1 million in FY2024 and RM13.4 million in FY2025 respectively, driven by increasing sales volumes, despite a reduction in ASP. Sales volumes are expected to grow by 21.8% in FY2024 and 10.5% in FY2025, driven by rising demand and government support for the agriculture sector,” said the research house.

Meanwhile, Malacca Securities valued Cropmate at 35 sen per share, based on a PER of 16 times, anchored to its projected EPS of 2.18 sen for FY2025.

“We believe that the ascribed PER is fair as the 12-month forward PER and historical average PER for the chemical industry on the Bursa Malaysia Industrial Production Index stood at 15.6-21.2 times,” it said in a Nov 19 note.

The research house forecast a three-year compound annual growth rate of 20% for Cropmate, with core profit after tax and minority interest projected to rise to RM13.9 million, RM16.1 million and RM17.4 million over the next three years, partly driven by increasing demand for durians from China.

Cropmate’s 30% dividend payout policy is expected to reward shareholders with dividends of 0.6 sen to 0.7 sen per share for FY2024 to FY2026, translating into a dividend yield of 2.8% to 3.5%, Malacca Securities added.

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