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PublicInvest positive on Farm Price Holdings’ expansion, earnings outlook

KUALA LUMPUR: Public Investment Bank Bhd (PublicInvest) is seeing a positive outlook for Farm Price Holdings Bhd’s (FPHB) expansion plans, particularly its enlarging operational facilities to expand its market coverage for business growth and enhance its supply chain in fresh vegetables.

Public Investment Bank indicates a fair value of RM0.30, suggesting a potential upside of 25.0%. for Farm Price Holdings Berhad

In a report, PublicInvest highlighted several developments that are expected to fuel FPHB’s growth in the near future.

These include building more facilities in Senai, Johor, expanding areas for value-added processing, buying new machinery and equipment, increasing their transportation fleet, setting up an additional regional distribution centre, and establishing a sales and marketing office in Singapore.

Further, PublicInvest noted that FPHB also has several competitive advantages, which include an established track record, a broad range of products along with value-added services, well-developed supporting infrastructure, a wide network of suppliers to reduce the risk of supply disruptions, a dual-channel distribution system, and an experienced management team.

The bank-backed research firm said
as of March 27, 2024, FPHB had about 980 stock-keeping units (SKUs) of fresh vegetables.

This inventory includes around 510 SKUs of whole fresh vegetables, 320 SKUs of pre-packed vegetables, and 150 SKUs of fresh-cut vegetables.

The pre-packed vegetables are mostly sold under FPHB’s brands, Farm Price and TLC Fresh, along with some brands owned by customers.

Fresh-cut vegetables are primarily sold to foodservice operators and wholesalers.

A small amount of these are also marketed under the Farm Price brand, but none under third-party brands.

PublicInvest said that as of March 27, 2024, FPHB’s Senai Centralised Distribution Centre spans 78,721 square feet, including 24,066 square feet of cold room facilities for storage, processing, and packing, alongside areas for ambient temperature storage.

The company plans to expand this centre by building additional structures on a 1.9-acre plot purchased in 2023, directly behind the existing facilities.

The planned expansion includes a 2-storey operational building with office and cold room facilities, a 4-storey accommodation block for workers, and a covered workshop.

When completed, the expanded area will be approximately 84,790 square feet, which includes an extra 4,000 square feet of cold room space.

This will increase the centre’s capacity from handling 29,669 pallets per year to about 40,000 pallets per year by 2026.

On the same date, an architect was hired to prepare the building plan submission, and the new operational building is expected to start operations by the first quarter of 2026.

Additionally, FPHB intends to grow its processing capabilities by adding around 4,000 square feet of floor space at the Senai Centre, particularly to enhance its range of value-added products such as pre-packed and fresh-cut vegetables.

The related renovations, which will expand the processing area and the cold room facilities, are set to start in the third quarter of 2025 and should be completed by the end of the fourth quarter of 2025.

Touching on earnings forecast, PublicInvest said while FPHB’s current facility is operating at full capacity, the research firm anticipates that the company’s growth will be supported by new distribution centres in Cameron Highlands and Nilai.

These centres are expected to start operating in the fourth quarter of 2024.

Additionally, FPHB can increase its production capacity by adding extra processing shifts and making more delivery trips if needed.

“As a result, we are projecting that FPHB’s core net profit will grow by an average of 18 per cent in the financial years 2024-2025.

“This growth is expected to come from better economies of scale, expansion into new geographical areas, and improvements in the supply chain with the start of the new distribution centres,” PublicInvest noted.

“FPHB’s net gearing ratio currently stands at 0.4x. We expect the company to be in a net cash position after IPO,” the firm noted.

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