Dairy venture expected to drive growth at Rhone Ma
21 Mar 2022
RHONE Ma Holdings Bhd’s venture into the dairy business is expected to contribute 50% of its revenue over the medium term as well as being potentially margin-accretive.
UOB Kay Hian Research’s analyst Philip Wong foresees the venture could provide the impetus for multi-year growth for Rhone Ma ahead.
“Apart from expanding its operations downstream, the segment enjoys structural demand growth,” Wong wrote in a research report on the company recently.
To recap, in 2020, Rhone Ma went downstream into the livestock industry through its RM7.8 million acquisition in One Lazuli Sdn Bhd.
According to the analyst, the group has grown its Holstein cow herd into 300 heads as of the end of last year from only 40 cows in 2019.
“While Holstein cows have high milk yield, it is not typically bred in Malaysia due to the tropical climate but these hurdles were overcome by Rhone Ma’s excellent farm management,” he noted.
Concurrently, Rhone Ma’s Holstein cows produce the highly-prised A2 milk, which is said to aid with milk intolerance and commands a 20% to 30% price premium (in raw milk form).
“Aside from its cow herd, Rhone Ma looks to build its own milk processing plant (due for completion by end-22) with 15,000 litres of milk processed a day,” he added.
Wong noted the segment could exponentially grow over the near term if Rhone Ma receives an additional boost from its joint venture (JV) with Kulim (M) Bhd.
“We gather the project could include the managing of 1,000 to 2,000 cows as Rhone Ma owns a 35% stake in the JV,” he said.
Despite Rhone Ma’s 300 strong cow herd being considerably smaller than Farm Fresh Bhd’s existing cow herd of 8,600 cows, however, this enables Rhone Ma to breed high milk-yielding dairies.
“Given Rhone Ma’s higher milk yield, it could perhaps command operating margins similar to or better than that by Farm Fresh (2019-2021) of 20.6% as Rhone Ma scales up,” he added.
Wong foresees Rhone Ma’s valuation could re-rate closer to its peers on the back of its dairy business.
At its current historical valuations, Rhone Ma is trading close to its five-year price earning mean of 12.8 times.
“Its related peers within the animal health or feed, poultry and food and beverages companies with dairy products industries are trading at 15.4 times, 19.3 times and 33.1 times respectively,” Wong stated.
There are some key risks for Rhone Ma including the contamination of products and lapsed exclusive distributorship or rights of third-party products.
Rhone Ma shares closed one sen lower at 74.5 sen last Friday, valuing the company at RM164.6 million.
Source: The Malaysian Reserve
