@EatCoconutCanWin PE 70 including the one-off tax payment. The adjusted PE should around 36 times
This values the company at approximately 69 times its FY2021 (ended March 31) profit of RM36.2 million and 36 times its adjusted profit of RM69 million, after taking into consideration factors that include one-off tax liability expenses which are not part of its core earnings.
I would like to add on a few risk factor: 1) with high gearing, future interest hike may affect the profit. 2) is the expansion plan in the IPO prospect factor in current inflation such as logistic, animal feed, stainless steel etc? 3) F&N has invested in milk cow farm land in Perlis, we can foresee the competition will be intense in next 2-3 years.
BTW, if you gonna publish 3rd report, could you include the PE comparison to peers, discount cash flow method, how PE36 concluded for FARM Fresh? And the productivity year of milk cow as well as biological asset depreciation .
the author highlighted the biggest issue here. The capital from this IPO can only last for 2 years. What happen after 2 years? Rights issue? Private placement? The high borrowings is also a big concern. I never liked companies with such debt..
hi Goh, Well i would like to see it positively that the company will immediately use the proceeding to build new plant and farm and it takes only 2 years. I hate those management hold the fund raised by depositing in bank for low interest income. From the GP, i see the revenue generated from the new investment are enough and sustainable for working capital therefore the co does not need to raise fund for working capital more than 2 years. Other words, the new plant n farm has positive cash flow.
@Cipta definitely FarmFresh will have positive cash flow. But the interest expense will eat into its profit. Dutch Lady latest FYE RM1.14b. Net profit RM248m PE 8.4 EPS 388 DY 1.54%.. incomparable to DutchLady. Don't expect much from this new IPO.
@goh yeah, i expect interest will go up in 1 or 2 years if no sudden drop of economy and it will eat into Farm Fresh profit. With the new facility as security, the management can renegotiate the loan interest may be. From the PE alone, I would pick Dutch Lady from open market instead of locking my fund a few weeks for lucky draw. Moreover, Ductch lady is the no 1 in the fresh milk segment and declare dividend consistency.
I would like to listen MQ how PE36 arrived for Farm Fresh. Shall we?
they arrived at PE 36 by not paying any single sen of tax which is very misleading.. The PE will be printed as at least 70 when listing date comes. I want to know how much amount of tax they underestimated in the prior year?
Historical PE 36x is derived from FYE 31 March 2021 adjusted profit of RM69mil derived after adjusting for the the one-off tax expenses of RM25.7mil, all of which is contained in the IPO Prospectus
My question is: for instance, Dutch Lady, as per @Goh said is PE=8, why investment bank think it is 4x worth more than Dutch Lady? How they come into conclusion in this valuation?
it is incorrect to say Dlady's PE is 8 because that PE is inclusive of one-off gains from asset sales in 4Q. If you exclude that, PE based on Dlady's core operations is about 27x (which is more in line with the valuation Farm Fresh is seeking)
Hi @gohkimhock, here is the clarify for the Tax expense, there are 2 type of tax expenses which is "Current tax and deferred tax" & "Additional tax for prior years".
The current tax and deferred tax : FYE 2021: RM 9.05 mil FYE 2020: RM 1.79 mil FYE 2019: RM 804k
The additional tax for prior years FYE 2021: RM 25.70 mil FYE 2020: - FYE 2019: -
The additional tax is one off tax, therefore we only exclude the RM 25.70 mil of additional tax for prior year to get the adjusted figure under the margin part.
The one-off liability and penalty amounting to RM25.7 million for the years of assessment (YA) 2014 to 2020 ? which was recognised in FY2021 ? is in respect of non-approved locations for certain milk processing plants located in Larkin. (Source: theedgemarket)
For illustration purposes only, assuming the Additional Tax Liability of RM 25,708,582 and the Larkin Facility Tax Incentive (as defined above) of RM 10,490,033 is allocated to respective financial year/periods, the adjusted consolidated PAT for the financial years/periods indicated would be as follows.
Consolidated PAT: RM 32,828 mil + Reallocation of additional tax liability: RM 25.709 mil +Reallocation of tax reversal: RM 10.490 mil = Adjusted PAT: RM 69.027 mil.
More information on the tax incentive you may refer: Farm Fresh - Prospectus (Part 2) Pg 292
@Jesse looking at the comments, seems many casual investors are bearish on the stock, while more savvy investors / institutions are bullish. With institutions taking up nearly 92% of the stock and retail investors taking 8%. How do you think this will effect it and play out?
@gohkimhock, 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.
Farm Fresh voluntarily sought clarification on 5 October 2020 from the MOA on the tax exemption status of the Larkin facility, they were informed that they were in bread of the Expansion Notification Requirement.
For more information regard the LPD you may refer Prospectus part 2 pg 292 & 293
Beware of get rich quick IPO scheme. Heavy weights will definitely unload when the price is right upon listing. Listing date is their opportunity to become multi millionaire without a drop of sweat. The anchovies better wait and see, don't swim into whale's mouth. Let the hype settle.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
EatCoconutCanWin
6,667 posts
Posted by EatCoconutCanWin > 2022-03-03 10:16 | Report Abuse
Current pe ratio at 70. Omg super duper high. Only selling milk, nothing else. No good for farm as cow feed price increase, impacted earnings.