Cropmate Berhad Launches IPO, Subscription Opens on 15th November 2024

The company is primarily an investment holding entity, and through its subsidiary, it is mainly engaged in the formulation and blending of both conventional and specialty fertilizers, as well as the trading of straight fertilizers and related products. Their operations are situated at Factory Lot 8949 and Factory Lot 8950 in Klang, Selangor.

Cropmate Group markets its conventional fertilizers primarily under the brand "Cropmate-Dua Daun." A smaller portion of its revenue comes from the brand "Cropmate-Kincir Angin." Specialty fertilizers are mainly offered under the sub-brand "CM Miracle."

Their business model is as follows:

As of the Last Practice Date (LPD), they have four blending-compacting production lines, three of which are utilized for the production of compacted and semi-organic fertilisers, and one is dedicated to the production of blended and organic fertilisers. The combined annual capacity of the three production lines for compacted and semi-organic fertilisers is approximately 150,000 tonnes, while the annual capacity for the single production line for blended and organic fertilisers is approximately 64,000 tonnes.

The company's core business involves providing both standard and customised fertilizer formulations. They offer 18 standard formulas for conventional fertilizers and 14 for specialty fertilizers, which cater to common agricultural needs and contribute significantly to their revenue. These standard products are produced in stock and on demand.

For FPE 2024, their standard formula and customised formula fertilisers accounted for 51.3% and 24.0% of their total revenue, respectively, while the remaining 24.7% was contributed by the trading of mainly straight fertilisers and related products.

Based on the IPO Price of RM0.20, the total gross proceeds of RM42.00 million from the public issue will be used by the company in the following manner:

The company plans to allocate RM17.14 million, which represents 40.8% of the gross proceeds from the Public Issue, to fund its working capital requirements. This planned allocation will be used exclusively for the purchase of input materials such as macronutrients and micronutrients. The estimated purchase of input materials is divided into approximately 90% for macronutrients and 10% for micronutrients.

The company also plans to allocate RM16.70 million, accounting for 39.8% of the gross proceeds from the Public Issue, to partially finance the Proposed Acquisition of Factory Lot 8949 and the Proposed Acquisition of Factory Lot 8950.

The company has set aside RM3.17 million, which is 7.5% of the gross proceeds from the Public Issue, to purchase new vehicles and equipment. This fund will also be used for the establishment of a R&D and test laboratory aimed at enhancing the company's operations and customer service capabilities.

Additionally, the company plans to allocate another RM5.00 million, also representing 11.9% of the gross proceeds from the Public Issue, to cover its listing expenses.

The company's financial performance from FYE 2021 to FYE 2023 has shown a mixed trend. Revenues increased from RM108.78 million in FYE 2021 to a peak of RM188.30 million in FYE 2022, before experiencing a decline to RM151.55 million in FYE 2023.

Gross Profit (GP) followed a similar pattern, rising from RM20.40 million in FYE 2021 to RM33.74 million in FYE 2022, and then decreasing to RM27.61 million in FYE 2023. This reflects the company's potential for growth, but also highlights the need for improved revenue and profit stability. The volatility in revenue and GP may be influenced by market fluctuations in fertilizer prices.

Profit Before Tax (PBT) and Profit After Tax (PAT) also fluctuated, with PBT increasing from RM10.77 million in FYE 2021 to RM19.27 million in FYE 2022, and then dropping to RM13.38 million in FYE 2023. PAT rose from RM7.63 million in FYE 2021 to RM14.62 million in FYE 2022, before falling to RM10.05 million in FYE 2023. These changes highlight the company's financial performance and the impact of market conditions on its profitability.

For the financial period ending 2024, the company projected revenues of RM67.31 million, a Gross Profit (GP) of RM13.02 million, a Profit Before Tax (PBT) of RM7.35 million, and a Profit After Tax (PAT) of RM5.58 million. These figures suggest that the company's market expansion and consistent performance.

Cropmate Group specializes in formulating and blending inorganic, semi-organic, and organic fertilizers, with the majority of its revenue coming from inorganic fertilizers.

The demand for fertilisers is largely dependent on the agriculture industry. Cropmate Group’s revenue was mainly derived from the oil palm plantations, as well as durian orchards.

– Domestic Production: The sales value of domestically produced fertilizers dropped by 18.4% to RM4.8 billion in 2023, primarily due to a decline in fertilizer prices.

– Imports and Exports:  

Imports: In 2023, the import value of fertilizers was 99.5% inorganic and 0.5% organic. The import value of inorganic fertilizers decreased by 38.6% to RM5.4 billion, mainly due to lower prices. Import volume grew by 42.8% to 5.0 million tonnes.

Exports: The export value of fertilizers was 99.7% inorganic and 0.3% organic. The export value of inorganic fertilizers fell by 39.4% to RM4.2 billion, again due to lower prices. Export volume grew by 2.9%.

– Consumption Value: Between 2021 and 2023, the apparent consumption value of fertilizers declined at an annual average rate of 2.1%, primarily due to the overall decline in fertilizer prices. Prices for N, P, and K fertilizers fell from an average of USD700/tonne, USD772/tonne, and USD863/tonne in 2022 to USD358/tonne, USD550/tonne, and USD383/tonne in 2023, respectively (Source: Vital Factor analysis).

– Agriculture Industry Dependency: Fertilizer demand is closely tied to the agriculture sector, particularly oil palm and durian plantations.

– Oil Palm Plantations:

Malaysia is a leading producer of palm oil. The planted area of oil palm plantations declined by 0.4% to 5.7 million hectares in 2023.

Crude Palm Oil (CPO) prices influence fertilizer demand. In April 2024, the average CPO price declined by 38.1% to RM4,255/tonne compared to May 2022, but remained high relative to 2018-2020 levels.

– Durian Orchards:

Durian accounted for 42.9% of the total planted area of major fruit crops in 2023, totaling 203,446 acres.

Between 2021 and 2023, the planted area and production volume of durians grew at a CAGR of 1.2% and 2.6%, respectively, indicating increasing demand.

This IPO offers 260,000,000 ordinary shares in Cropmate Berhad (Cropmate). The shares will be allocated as follows:

– 208,340,000 IPO shares made available for application by institutional and selected investors, including Bumiputera investors approved by the Ministry of Investment, Trade and Industry;

– 51,660,000 IPO shares made available for application by the Malaysian public, eligible directors, eligible employees, and persons who have contributed to the success of Cropmate and its subsidiary.

1. Product Diversity: The company caters to both plantations, particularly oil palm, and orchards, such as durian, with a diverse range of fertilizers. They offer a comprehensive product line with 17 conventional and 12 specialty fertilizer formulations to support plant development from nursery to maturity, along with customized options to meet specific growth stage requirements.

2. Market Coverage and Distribution: With extensive market coverage in Malaysia, they leverage two distinct distribution channels. This includes a direct channel that fosters customer loyalty by addressing their specific planting needs and gathering feedback for product enhancement, and an indirect channel that utilizes existing intermediaries to reach more end-users without increasing their in-house sales and logistics resources.

3. Brand Recognition and Loyalty: The company has successfully established brand recognition and loyalty by marketing and selling its fertilizers under the brands "Cropmate-Dua Daun," "Cropmate-Kincir Angin," and the sub-brand "CM Miracle," which have been gaining market traction since 2018.

1. Price Fluctuations of Key Input Materials: Their business and financial performance may be adversely affected by unfavorable price fluctuations of key input materials, particularly macronutrients N, P, and K fertilizers, which account for a significant portion of their total input material purchases. Sustained high prices of these inputs could impact their financial performance if they cannot pass on the increased costs to customers or if passing on costs results in reduced demand for their products.

2. Dependency on Oil Palm Industry Performance: The company's business is heavily dependent on the performance of the oil palm industry, which is subject to factors such as crude palm oil prices and weather conditions that can influence fertilizer purchases. Government policies, like the cap on oil palm cultivation area, may also affect the demand for fertilizers and, consequently, the company's business growth.

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