Malacca Securities believes higher CPO prices expected to drive fertilisers' sales and sees Cropmate Berhad is poised to benefit from the rise in crude palm oil prices, which are expected to remain elevated due to declining inventory levels, China's stimulus measures, and Indonesia's upcoming implementation of a 40% biodiesel blend mandate (B40) starting January

The Malaysian Palm Oil Board recently reported a 1.3% and 6.3% MoM decline in palm oil production and inventory levels, respectively, indicating that the tight supply conditions may support higher prices. With constrained supply, strong seasonal demand during festive periods, the favourable pricing environment for CPO presents significant growth opportunities in the fertiliser sector, as demand rises alongside higher CPO prices.

Durian demand from China to increase fertiliser consumption. The group is set to benefit from increased durian demand in China following Malaysia's approval toexport fresh durians in June, including premium varieties such as Musang King and
Black Thorn. According to CNA, exports are projected to approach nearly USD500m by 2030, with a compound annual growth rate (CAGR) of 48.3%, rising from USD36.3m in 2018 to USD260m in 2023. This surge in demand is likely to drive higher fertiliser usage among durian farmers, who are ramping up production to meet growing Chinese consumer appetite.

Specialty fertilisers garner higher margin over conventional fertiliser. The group is poised to capitalize on the growing demand for specialty fertilisers, which command a higher margin premium compared to conventional fertilisers, with a remarkable two-
year CAGR of 102.2%. As of FPE2024, specialty fertilisers achieve a GP margin of 33.9%, while conventional fertilisers lag at 19.1%. This premium is largely attributed to the custom formulation of specialty fertilisers tailored for durian orchards. With the increasing consumer preference for diverse durian varieties and the recent approval for fresh durian exports to China, demand for customised fertilisers is expected to rise significantly.

The group benefits from a 4.1% increase in the allocation to the Ministry of Agriculture and Food Security (KPKM) in Budget 2025, which reflects the government's commitment to enhancing food security and productivity within the agro-food sector. With an allocation of RM6.42bn, up from RM6.17bn in 2024, this budget aims to modernize agricultural practices and
strengthen infrastructure, directly impacting the demand for fertilisers. Key initiatives include RM300m for agricultural collaboration projects and RM65m for irrigation system development, all of which are expected to drive growth in the fertiliser market.

The house projects a 3-year earnings CAGR of 20.0%, with core PATMI expected to reach RM13.9m, RM16.1m, and RM17.4m over the next three years. This growth largely underpinned by the positive outlook for oil palm industry and increasing demand for durian from China.

Malacca has assigned a fair value of RM0.35 per share for Cropmate, indicating a 75.0% upside from the IPO price of RM0.20. This valuation it said was based on a PE multiple of 16x.