Growing up in a small town in the Northern parts of Malaysia, I never had the luxury of tasting Klang Bak Kut Teh until I became a working adult.
Don’t get me wrong. Although the herbaceous Klang-style Bak Kut Teh could be found in Chinese-populated areas, the Klang version packs way more punch.
And for a soup that requires plenty of Chinese medicinal herbs, it is usually a hassle to cook. Those who are old enough might remember how parents or grandparents would purposely make special trips to the Chinese medicinal hall just to get all the required herbs to make the soup.
But with so many herbs required, most medicinal halls don’t usually get it right when it comes to the ratio and recipe, although the results were still not bad.
But when readily packed Bak Kut Teh spice packs became available, it suddenly became the go-to option for home-cooked Bak Kut Teh. And among them, there is an undisputed go-to brand.
A1 Bak Kut Teh.
The spice ratio is just right for a home-cooked Bak Kut Teh, and it has been the brand many Malaysian Chinese grew up with.
Today, A1 produces more than just Bak Kut Teh soup spice. Its product line also counts instant beverages, pastes, sauces, noodles and canned food products as its key offerings.
On the 11th of July, the company will go public. For the uncles and aunties who have always opted for the company’s offerings, should they now consider investing in its IPO?
How A1 makes money
Even though A1 offers plenty of product offerings, it is crucial to know its core offerings. A1’s roots and capabilities date back to its founding in 1986, where it offered quick solutions for Chinese homemakers via their premixed spices, pastes and seasonings. That remains true as of today, as these products remain manufactured in-house.
As for the snacks, canned seafood and dried noodles, A1 works with its close third-party contract manufacturers to supplement its core portfolio.
While the company has a few in-house brands, A1 remains its flagship. Due to its premix and paste manufacturing expertise, it is also involved in contract manufacturing for third-party brand owners.
Where does A1 sell its products to?
As a Malaysian homegrown brand, for every RM100 the company makes, close to RM80 of it comes from Malaysia. Singapore, another country that is familiar with A1, contributes the next RM13. The remaining RM7 comes from Vietnam, US, PRC, Taiwan, Hong Kong and others. Since A1’s product offerings are skewed towards Asia cuisine, particularly Chinese cuisine, it is not difficult to realise that its geographical expansion tend to target Chinese populations in other parts of the world.
How much money A1 makes?
I wanted to make this a bit less technical and palatable to the general public, so I scoured the internet to check the price of 1 Bak Kut Teh soup spice pack.
The price for 1 pack is around RM10. So for the full year of 2024, A1 sold the equivalent of 9.6 million soup spices packs. Deducting off material costs and labour, the company made a net profit of close to RM 12 million.
With a desired dividend payout ratio of at least 40%, this means that the company would be targeting a dividend payout of roughly RM 4 million for 2025.
How will the money raised via IPO be utilised?
Like all companies going public, A1 is seeking a capital injection to bring the company to the next level.
The company will be raising RM 27.3 million from this IPO. RM 5 million will be channeled to build a new factory, while RM 8 million will be earmarked for marketing expenses and promotional activities
RM 4 million will be used to repay bank borrowings, while another RM 4 million will be allocated to beef up working capital, and RM 4.5 million will go towards footing the listing expenses.
How expensive or cheap are the owners pricing the company shares?
How much will retail investors be paying to be the shareholders of A1? Well the price ain’t cheap.
A1 has priced itself at a P/E multiple of approximately 17.67x, based on the IPO price of RM0.25 per share.This is done by approximating the earnings per share of 1.41 sen, based on the company’s audited PAT of RM 11.88 million.
How does that compare with existing listed food and beverage listed companies?
For starters, A1’s valuation will be steeper than existing FMCG blue chips listed on Bursa Malaysia. It will be pricier than beer breweries Carlsberg Brewery Malaysia Berhad (KLSE: CARLSBRG) and Heineken Malaysia Berhad (KLSE: HEIM). And both of these companies have a market cap of RM 8 billion and RM 6 billion respectively.
Market capitalisation wise, A1 will be worth RM 250 million upon its initial successful listing.
To put this into perspective, A1 will be around the size of NTPM Holdings Berhad (KLSE: NTPM). But with a FY2024 revenue of just RM 96 million, it does trail far behind NTPM’s revenue of RM 906 million.
That hints at a premium already baked into the valuation.
Verdict: Can buy or not?
Although bak kut teh and soup spices can be classified as an evergreen business, I have my reservations. From A1’s historical revenue trend, it is not in a rapid growth phase, so it might not be growing its top line by leaps and bounds.
For a stable company with no real clear moat, paying close to 18x earnings is a bit steep in my opinion.
And with more and more people opting to dine out, and paying a premium for the real deal, A1’s business model of making simple home cooks might not have a perpetual growth runway.
A1 soup spice packets might have played a big part in my teenage years, but now that I am an adult, I do find it phased out of my life.
But I could be wrong – the legions of uncles and aunties who swear by A1 and do participate in stock trading, might find this company prospective!
p.s. if you want to learn how to analyse and find the best stocks to buy, Alvin shares our strategy at this live webinar.
