When food ingredient producer Three-A Resources Bhd (3A) was listed on the then Mesdaq Market in 2002, it made a net profit of RM1.9 million on a revenue of RM23.8 million that year.
That was not a promising start, considering the fate of most Mesdaq companies since then, but after seven years, 3A’s net profit had risen to RM12.1 million for FY2008 ended Dec 31, six times that when it was listed.
Over the same period, 3A’s share price climbed from its initial public offering (IPO) price of 13 sen, adjusted for a bonus issue, to 55 sen last Thursday, four times that its IPO price.
It recently reported a record quarterly net profit of RM5.5 million for its 2Q2009 ended June 30. This appears sustainable and annualised from that, 3A could earn about RM22 million over a 12-month period. The stock trades at a price/earnings ratio of about 8 times, which is recognition for its steady earnings. It is also a benchmark for other local food companies which typically trade at a PE of 5 times.
While 3A remains a small cap company, it started as a micro cap one. In percentage terms, not many listed companies can claim this kind of wealth creation for their shareholders. 3A’s listing was transferred from Mesdaq to the Main Market in June.
What are the secrets of 3A’s success? Its executive director Fong Chu King attributes it to the company’s emphasis on product quality. That has enabled it to be selected as a supplier by local and multinational food producers both here and regionally.
The other factor for the company’s growth would be its carefully planned expansion of capacity and introduction of new products. It had identified, for instance, maltodextrine as the next product in its menu of ingredients. Hence, in 2007, it commissioned the country’s first plant to produce maltodextrine, an ingredient in three-in-one instant coffee.
“Food companies are very particular about the quality of ingredients they buy. So, it takes time for them to test your products. Now, after two years, our quality is widely accepted, and the plant is now operating at full capacity,” he tells The Edge.
Orders, in fact, are pouring in, and Fong has the happy problem of having too many orders. He’s had to allocate supplies to his customers.
With a successful project in maltodextrine — full capacity for the 1,200-tonne plant — the company is planning for a new 2,000-tonne plant.
“We are confident of a new plant that is almost double that of the first one. Many of our customers are MNCs and that has given us the credentials to supply to other MNCs in the region. We have a lot of enquiries but we don’t have enough capacity,” says Fong.
Meanwhile, 3A is upgrading the present 1,200-tonne maltodextrine plant to a 1,500-tonne capacity. Work is expected to be completed next month.
The company had expanded its glucose plant capacity to 7,000 tonnes last year and utilisation is about 50%. While there appears to be ample spare capacity, some of that will have be taken up by the maltodextrine plant when its capacity is expanded. In addition, an MNC is expected to increase its purchases of maltodextrine for its instant coffee products.
Glucose is used to produce maltodextrine and hence, they form an integrated process for 3A. Malaysia is an ideal place to produce glucose, Fong says, as palm oil, the raw material, is available here. Fresh palm oil is needed to produce good quality glucose.
The company is planning capacity expansion and new products — its growth ingredients — for the next few years. “It’s still a growing company,” says Fong.
This article appeared in The Edge Malaysia, Issue 769, Aug 24-30, 2009.