Orgabio Holdings Bhd, linked to the ACE market, will head to the ACE market at a difficult time given the current decline in equities globally.
Nevertheless, being valued at an undemanding price compared to multiple earnings of 10.1 times, such a ratio could perhaps help it attract enough interest from investors.
Orgabio belongs to the consumer sector, which tends to attract investor interest due to the growth and perceived stable cash flow.
The company, which sells nearly 97 million new shares at 31 sen per share, is involved in the instant drink premix manufacturing services business.
It is said to be the third largest industrial player in the country, with 16 years of experience.
Most of Orgabio’s sales are to third party brand owners and key customers including Econsave Cash & Carry Sdn Bhd, Lotuss Stores (M) Sdn Bhd, Hai-O Enterprise Bhd and TDC Avenue Sdn Bhd.
Speaking to StarBizWeek, Orgabio CEO and Executive Director Ean Yong Hien Voon said one of the company’s competitive strengths is its ability to provide custom formulation and manufacturing processes for beverage premixes. that it provides to third parties.
“Some brand owners may not have their own product formulations. We help our customers source the ingredients, create the formulation, and complete the product registration,” he explains.
He adds that Orgabio provides end-to-end solutions, from formulating instant drink premixes to packaging and delivery.
Orgabio’s manufacturing processes are certified halal by the Department of Islamic Development Malaysia (Jakim).
The sale of instant beverage premix manufacturing services to third-party brand owners generated nearly all of Orgabio’s revenue in the first half of its fiscal year 2022 (1H22).
Instant drink premixes consist of coffee premixes, dietary supplement premixes and others.
Customers of beverage premix sales include food and beverage companies, supermarket or hypermarket operators, pharmaceutical companies and direct selling companies.
According to the group, its direct selling segment through which it works with third-party brands has had the highest sales contribution over the past four years.
In the meantime, the company has its own house brands, namely EveryDay and BrogaHill, which it manufactures and sells as instant drink premixes.
But these only contributed 0.5% to the group’s turnover in 1H22.
Another 0.6% of the company’s revenue comes from the sale of aloevera gel.
In terms of profitability, the company was able to achieve a four-year average gross profit margin of 30% and just over a net profit margin of 10% between 2018 and 2021.
In terms of growth, revenues were 21.8% on a compound basis, while net income was 11.4% for the four-year period.
Orgabio expects RM29.97mil of proceeds from its Bursa Malaysia ACE market listing, which is expected to take place on July 5. Orgabio plans to use 54% or RM16mil of its product for the construction of a new plant.
In addition to increasing capacity, the group is looking to improve manufacturing efficiency through automation.
“The plan is to upgrade production standards and automate as much as possible, to reduce labor and increase efficiency,” says Hien Voon.
The new factory is expected to be operational in Semenyih, Selangor in August next year.
The company has an annual production capacity of 230 million sachets, up from 152 million sachets in FY21.
With the new factory, the company also hopes to take on new customers and larger orders.
The company also plans to expand its direct selling segment, as it counts nine local direct selling companies among its customers.
Meanwhile, 27% or RM8.14mil of the listing proceeds will be used for working capital, primarily to purchase commodities.
The registration fee will be 12% of the proceeds or RM3.6 million, while the remaining RM2.23 million or 7% of the proceeds will be used for the acquisition of new machines.
In its presentation material, Orgabio notes that it has good long-term working relationships with its major customers.
Its top five customers have a business relationship of at least 13 years with Orgabio, the company says.
For example, TDC Avenue Sdn Bhd, the company’s largest revenue contributor with 56.8% in FY21, has worked with Orgabio for 13 years.
In 2008, the company ventured into providing dietary supplement premix manufacturing services for third party brand owners, when it secured TDC Avenue Sdn Bhd as its first customer.
There is a significant improvement in the contribution of dietary supplement premixes to company revenue, where in FY18 they only contributed approximately 7.5%, while in ‘FY21, they contributed about 60%.
However, for coffee premixes, a lower contribution can be considered as in FY18 it contributed around 80% of the company’s revenue, while in FY21 it contributed around 35%, but this was due to the growth of dietary supplement premixes.