Initial Public Offering (IPO)
IPO - Farm Fresh (Part 1)
MQTrader Jesse
Publish date: Mon, 28 Feb 2022, 09:19 AM
Khazanah Nasional Bhd-backed Farm Fresh Bhd (formerly known as Holstein Milk Company Sdn Bhd), an integrated dairy farming player, has filed a draft prospectus for an initial public offering (IPO) on the Main Market of Bursa Malaysia. Farm Fresh Berhad had submitted the prospectus to SC on 4 October 2021. We will excavate the essential information with different aspects from the Prospectus report.
History of Company
Farm Fresh Berhad was incorporated in Malaysia under the Companies Act,1965 on 24 March 2010 as a private limited company under the name of The Holstein Milk Company Sdn Bhd and is deemed registered under the Act. On 24 May, the company changed its name to Farm Fresh Sdn Bhd. In September 2021, the company had been converted into a public company and assumed the name of Farm Fresh Berhad.
The principal activities of the company are rearing dairy cows and sale of dairy cows’ milk whilst, together with the subsidiaries, the company forms a fast-growing vertically integrated dairy group engaged in the business of farming, manufacturing, and distribution of various dairy products and plant-based products. As at the LPD, the group operates five dairy farms in Malaysia and one dairy farm in Australia.
The group has a diverse product portfolio that consists primarily of chilled Ready-To-Drink (RTD) milk products, Ultra-high temperature processing (UHT)/ambient RTD products, plant-based products, yogurt products, and fruit jam and sauces.
Use of proceeds
- Capital expenditure of Group - 79.70%
- Establishment of a new manufacturing hub, new dairy farm ,and integrated processing facility in Malaysia – 46.50% (Within 24 months)
- Expansion of production facility in Australia – 19.90% (Within 18months)
- Regional expansion outside of Malaysia – 13.30% (Within 24 months)
- Working capital - 13.60% (Within 12 months)
- Estimated listing expenses - 6.70% (Within 3 months)
Research of the use for capital expenditure of group
Establishment of a new manufacturing hub, new dairy farm, and integrated processing facility in Malaysia.
The completion of the new manufacturing hub is expected to increase the Group’s total annual production capacity of finished RTD products by 13.60 million litres with the additional two filling and packaging lines as well as an additional two ice cream filling lines with a total annual production capacity of 2.3 million kg. The current annual production capacity is 137 mil litres, the new manufacturing hub can be increased by around 10% of total annual production capacity for Farm Fresh. Furthermore,they will introduce their new product, ice cream. Ice cream will also be produced in the new manufacturing hub with 2.3 mil of annual production capacity.
Expansion in production facility in Australia
The management expects to begin Phase 2 expansion in the 4th quarter of 2021 and commence production of UHT/ambient products at our Kyabram Facility in the second quarter of 2023. The phase 2 expansion of Kyabram Facility can produce 50.0 million litres of UHT/ambient products in Australia.
Regional expansion outside of Malaysia
The company intends to rent one factory building in both Indonesia and the Philippines. The completion of the new processing facilities in Indonesia and the Philippines is expected to increase the Group’s total annual production capacity by about 20.8 million liters of finished products each.
Frost & Sullivan, a market research company who expected the RTD milk segment in Indonesia and the Philippines to grow at a CAGR of 9.3% and 6.5%, respectively, from 2020 to 2025. Both of the countries have the top 2 highest population in Southeast Asian countries, 270 mil of the population in Indonesia and 108 mil of the population in the Philippines (31 mil population in Malaysia). A total of 388 mil of the population in both countries is a potential market for consumer business to expand.
Moreover, Farm Fresh’s product is under halal certification and will have an advantage when entering the Indonesian market. The majority religion of Indonesian is Muslim that has a high demand for halal products is beneficial to Farm Fresh Companies.
Business Model
Farm Fresh is using a vertically integrated business model to carry out their business. Through the image, we found that they are handling the upstream, midstream, and downstream. The upstream business includes the production of raw milk from the farms, while the midstream business is responsible for milk product manufacturing. They will process the raw milk to the final product in the factory. The downstream is to build the brand of the final product and distribute the final product to consumers.
The company who carries out their business with a vertical integration business model will improve supply chain coordination, capture upstream or downstream profit margin, increase entry barriers to potential competitors, gain access to downstream distribution channels that otherwise would be inaccessible, and easier to manage/fulfill all the inventory.
In the next blog, IPO - Farm Fresh (Part 2) Analysis & MQ Trader Views, we will share more on the financial position and our view of Farm Fresh IPO. Stay tuned!
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Discussions
Be the first to like this. Showing 20 of 20 comments
PE36 for a milk company, where price of basic items all up up up. Even some tech counter also kalah.... not interesting at all, more of a chance for long term investor to take profit only.
2022-02-28 22:48
where can i get this farm fresh prospectus? cannot find it anywhere on the net.
2022-03-01 00:18
Hi @zulhairi, you may check the full report from the Bursa website or you may stay tuned on part 2, we will write down our analysis about this IPO
2022-03-01 08:53
MQTrader Jesse..I am waiting to read your analysis. If can include their profit margin as well as comparison of margin and PE to local peers such as F&N and Dutch Lady will be great.
2022-03-01 17:16
@Cipta Sure, we will add this information into our part 2 analysis blog. Stay tuned ya !
2022-03-01 17:51
Hi @kyappc, Kyabram Facility is fully automated, with a control centre that oversees and manages the entire
process flow from the receiving of raw milk to packaging, palletising and exporting to the Malaysian processing facilities.
2022-03-01 17:52
Overvalued stock. Holland soon. Selling milk only, few products in markets. Do you think the company annual report is multi million income? Haha
2022-03-02 08:59
IPO - Farm Fresh (Part 2) Analysis & MQ Trader Views
Is Farm Farm IPO worth to apply?
IPO Farm Fresh Part 2: https://klse.i3investor.com/web/blog/detail/mqipo/2022-03-02-story-h1596586016-IPO_Farm_Fresh_Part_2_Analysis_MQ_Trader_Views
2022-03-03 08:40
@VTrade The company is not tax-free company. Farm Fresh has the company has been granted tax incentive (Agricultural Tax Incentive) under MOA and East Coast Economic Region Incentive for income earned from dairy milk processing activities.
As the management disclose, these incentives have led to Farm Fresh incurring effective tax rate in Malaysia of 5.1% in FYE 31 March 2019, 5.8% in FYE 31 March 2020 and 8.5% (excluding impact of the tax reversal of RM 10,490,033) in FPE 30 September 2021, respectively which were lower than the Malaysian statutory tax rate of 24.0% for each of FYE 31 March 2019, FYE 31 March 2020 and FPE 30 September 2021.
For more information regard the tax incentive you may refer Prospectus part 2 pg 292.
2022-03-04 15:23
very good responce IPO
over subscribed nearly 20 X
RM 2 - 3 possible. - another MR DIY
2022-03-13 08:06
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"Khazanah Nasional Bhd-backed Farm Fresh Bhd (formerly known as Holstein Milk Company Sdn Bhd),"
GLC = Guranteed Lingkup Company.
2022-02-28 19:14