Orgabio to increase productivity as it prepares for listing

(from left): Orgabio Holdings Bhd chief executive officer and executive director Ean Yong Hien Voon, founder and executive deputy chairman Datuk Ean Yong Tin Sin, and executive director Ean Yong Hen Loen.

ACE Market-bound Orgabio Holdings Bhd will be headed to the ACE Market at a challenging time considering the ongoing global sell-down in equities.

Nevertheless, being valued at an undemanding price to earnings multiple of 10.1 times, such a ratio perhaps may help it garner sufficient interest from investors.

Orgabio is in the consumer industry, which tends to attract a fair bit of investor interest due to the perceived stable growth and cash flows.

The company, which is selling close to 97 million new shares at 31 sen a share, is involved in the business of instant beverage premixes manufacturing services.

It is said to be the third largest industry player in the country, with 16 years of experience.

Most of Orgabio’s sales are to third party brand owners and key customers, which includes the likes of Econsave Cash & Carry Sdn Bhd, Lotuss Stores (M) Sdn Bhd, Hai-O Enterprise Bhd and TDC Avenue Sdn Bhd.

Speaking with StarBizWeek, Orgabio chief executive officer and executive director Ean Yong Hien Voon says one of the company’s competitive strengths is its ability to provide customised formulation and manufacturing processes of the beverage premixes it supplies to third parties.

“Some brand owners may not have their own product formulations. We assist our customers to source ingredients, create the formulation, and carry out the product registration,” he says.

He adds that Orgabio provides end-to-end solutions, from formulating the instant beverage premixes, up 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 basically all of Orgabio’s revenue in the first half of its financial year 2022 (1H22).

Instant beverage premix consist coffee premixes, food supplement premixes and others.

Customers of beverage premix sales include food and beverages 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 the highest sales contribution for the past four years.

In the meantime, the company has its own in-house brands, namely EveryDay and BrogaHill, that it manufactures and sells as instant beverage premixes.

But these contributed only 0.5% of the group’s revenue in the 1H22.

Another 0.6% of the company’s revenue comes from the sale of aloevera gel.

In terms of profitability, the company has been able to achieve a four-year average gross profit margin of 30% and just over a 10% net profit margin between 2018 and 2021.

In terms of growth, revenue has been 21.8% on a compounding basis while net profit is at a compounding 11.4% for the four-year period.

Orgabio expects RM29.97mil in proceeds from its listing on the ACE Market of Bursa Malaysia, which is schedule to take place on July 5. Orgabio plans to utilise 54% or RM16mil from its proceeds for the construction of a new factory.

Besides increasing its capacity, the group is looking to enhance its manufacturing efficiency by automation.

“The plan is to upgrade production standards, and automate as much as possible, so that we can reduce manpower and increase efficiency,” Hien Voon says.

The new factory is expected to be operational in Semenyih, Selangor by 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 has hopes of taking on new customers and larger orders.

The company also plans to expand its direct selling segment, for it has nine local direct selling companies as its customers.

Meanwhile, 27% or RM8.14mil of the listing proceeds will be used for working capital, mainly to purchase raw materials.

Listing expenses will take up 12% of the proceeds or RM3.6mil while the remaining RM2.23mil or 7% of the proceeds will be used for the acquisition of new machinery.

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 of 56.8% in FY21, has been working with Orgabio for 13 years.

In 2008, the company ventured into the provision of food 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 food supplement premixes towards the company’s revenue, where in FY18, it only contributed about 7.5% while in FY21, it contributed about 60%.

However, for coffee premixes, a lesser contribution can be seen as in FY18 it contributed about 80% of the company’s revenue while in FY21 it contributed about 35%, but this was due to the growth in the food supplement premixes.