Orgabio to gain from rising demand for beverages

Orgabio's Ean Yong Tin with some of the companies products

PETALING JAYA: The outlook for Orgabio Holdings Bhd is expected to be positive due to the increasing demand for coffee, tea, milk and cocoa beverages in Malaysia on the back of government initiatives to promote halal products.

Mercury Securities Research said the sales of coffee, tea, milk, and cocoa beverages grew by a compound annual growth rate of 7.73% to RM16.05bil from 2018 to 2020.

In terms of revenue generated year-on-year (y-o-y), the research house noted the instant premix beverages one-stop solutions provider reported a near 25% and 50% growth in the financial year (FY) 2020 (FY20) and FY21 respectively.

More than 80% of its total revenue in FY21 was recorded to be generated from its top customers.

Mercury Securities Research added that the positive results were largely contributed by the strong track record the group has with well-established customers.

The group’s solid earnings outlook was also based on its offerings that tailored to their customers’ needs.

“Orgabio provides a full customisation option for the formulation of instant beverage premixes for its customers.

“The company has a strong track record in the industry with its notable customers, with business relationships spanning up to 16 years,” said Mercury Securities Research in a report yesterday.

Orgabio, the third largest instant beverage premix manufacturer in the country has expansion plans for a new factory in Semenyih, Selangor by August 2023.

New machinery which will boost manufacturing capacity will also be purchased by the group for continued earnings growth.

Additionally, the company will also see stable growth under the leadership of its executive deputy chairman Datuk Ean Yong Tin Sin who has about 30 years of experience in the industry.

“The new factory and machinery will reduce the reliance on manual labour and increase manufacturing capacity. This is expected to improve efficiency and grow its customer base in the direct selling segment and support their expansion of export sales,” said the research house.

Export sales made up for 22% of the group’s revenue in the first quarter of financial year 2022 (FY22) while direct sales contributed more than 80% of the group’s total sales in FY21. The group exports to Singapore, China, United Arab Emirates and Russia.

Malaysia is one of the world’s top five exporters of coffee extracts accounting for 7.49% of global exports in 2020.

Orgabio said the global demand for coffee premixes is expected to grow.

Mercury Securities Research has a “subscribe” rating on Orgabio’s initial public offer shares with a target price of 38 sen which is a premium to its offer price of 31 sen a share.

The 38 sen valuation is based on FY23 estimated earnings per share of 3.5 sen and a price to earnings ratio of 10.9 times, which is at a 30% discount to peer average.

Orgabio is scheduled to list on the ACE Market on July 5.