KUALA LUMPUR (June 19): Ocean Fresh Bhd (OFB), a frozen seafood company en route to the ACE Market at an initial public offering (IPO) price of 28 sen, has been valued at between 35 sen and 54 sen by analysts.

In separate notes on Wednesday, TA Securities valued the stock at 35 sen and Mercury Securities at 54 sen.

TA Securities, which does not have a rating on OFB, said that at the IPO price of 28 sen, OFB is valued at a price-to-earnings (PE) ratio of 8.47x based on its FY2023 earnings per share (EPS).

“We have applied a target PE ratio of 9x to the CY25 EPS, to derive a fair value of 35 sen, representing a 10% discount to its peers after considering the relatively smaller market capitalisation and earnings growth,” it said.

Meanwhile, Mercury Securities Bhd has recommended investors to “subscribe” to OFB with a fair value of 54 sen, based on eight times FY2025F EPS, translating to a 91% potential upside to the IPO price.

The research house said its target PE is at 20% discount to comparable peers’ average, considering OFB’s smaller market capitalisation.

Mercury said that while OFB’s FY2024F revenue is likely to remain flat (due to storage constraints), it expects OFB earnings to normalise to RM9.8 million (up 41% year-on-year) in the absence of several major one-off items that dragged the previous year's earnings.

“To be prudent, OFB has previously provided for larger bad debt write-offs and net impairment losses of its receivables in FY23 (even though collections have been decent, with 80% outstanding collected as of May 2024).

“The company has also incurred sizeable one-off professional fees in 2023 to prepare for its IPO listing,” it said.

Mercury said OFB has a healthy balance sheet with net cash position.

“The company does not plan to adopt a formal dividend payout policy.

“Nevertheless, we forecast a modest 30% payout ratio, taking into account that OFB might need additional working capital to support higher production and sales levels from FY25F onwards,” it said.

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