EPB Group demonstrated strong growth potential with its comprehensive food processing and packaging machinery solutions, according to a report by RHB Investment Bank (RHB). The company is set to leverage its IPO proceeds to expand production facilities in Penang, catering to the growing demand for processed food products and industrial automation.
RHB maintains a BUY recommendation on EPB Group, setting a fair value (FV) of RM0.65, up from its IPO price of RM0.56. The valuation is based on a 16x Price per Earnings (P/E) ratio for the Fiscal Year 2025 Forecast (FY25F), reflecting the company's robust expansion plans and a healthy net cash position.
EPB plans to utilise MYR40.1 million raised from the IPO for land acquisition, factory construction, warehouse and showroom development, new machinery purchases, bank borrowing repayments, working capital, and listing expenses. These strategic investments aim to enhance production capabilities and reduce turnaround time, positioning EPB to meet future demand growth effectively.
RHB projects a three-year earnings Compound Annual Growth Rate (CAGR) of 7%, driven by the food processing segment, which comprises 82% of FY23 revenue. Despite a weaker earnings forecast for FY24 due to the timing of revenue recognition, core earnings are expected to pick up in the second half, supported by the growing preference for convenient processed food products and increased industrial automation.
The expansion is expected to significantly boost EPB's revenue and profit margins, with the company targeting a CAGR of 5% for revenue growth over the next three years. The IPO proceeds will also facilitate the repayment of bank borrowings, improving the company's financial stability and enabling further investments in growth initiatives.
EPB's valuation at a 16x P/E is aligned with the five-year historical mean P/E of the Bursa Malaysia Industrial Products and Services (KLPRO) Index. This target P/E, slightly above EPB's FY23 trading P/E of 14.6x, is justified by the anticipated earnings growth, reasonable expansion plans, and strong net cash position.