PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 20 Feb 2020, 9:10 AM


SDS Group Berhad - A Staple For All

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SDS Group Bhd (SDS) is principally engaged in the manufacturing and distributing of bakery products as well as operating food and beverage (F&B) outlets. The group's products are sold via both wholesale and retail channels. Besides producing varieties of breads, buns, rolls and cakes which are distributed to the wholesale channel under its brand name of 'Top Baker' and 'Daily's', SDS also manufactures bakery products on an original equipment manufacturer (OEM) basis. In addition, SDS produces varieties of bakery, confectionery and other F&B products which are sold through its retail channels. As at 24 July 2019, SDS has a total of 33 F&B outlets (including five outlets under licensing arrangement) in Johor. All the products under this channel are sold under its brand name of 'SDS'. The group's principal markets are Malaysia and Singapore.

Apart from expansion of local geographical footprints and provision of door-step delivery of its F&B products, SDS intends to venture into the franchising business model post-IPO. We derive a fair value of RM0.25 based on a 12x PE multiple to its FY2021F EPS of 2.1 sen. The IPO is expected to raise approximately RM24.0m from the issuance of 104.3m new shares. Besides utilising 25% of the proceeds for expansion of business presence for both wholesale and retail channels, 32.5% of the proceeds are earmarked to supplement the working capital requirements of the group which are expected to increase in line with its expansion plans.

  • Growth drivers. SDS’s growth will be dependent on i) expansion of local geographical footprints with the setup of new depots and purchase of new delivery vehicles ii) provision of door-step delivery of its F&B products to consumers via established food delivery providers, and iii) venture into the franchising business model.
  • Competitive strengths. SDS’s competitive strengths include: i) in possession of its own dedicated and extensive logistics capability, ii) established brands and marketing drive, iii) extensive portfolio of products with continued innovation, iv) centralisation in core production functions, and v) fully automated sandwich loaf production line in Seremban.
  • Catalysts. Key drivers may include: i) changing food consumption trend, ii) preference for conveniently-packed food products, iii) growing affluence of Malaysians, iv) steady populations growth, v) wide range of bakery products to meet ever changing demands, and vi) advancement in technology.
  • Key risks. Key downside risks, among others, include i) competition from other competitors, ii) dependency on availability, quality and price fluctuations of raw materials, iii) dependency on foreign workers in its manufacturing plant, and iv) compliance with stringent licensing requirements, relevant food regulations and hygiene standards.

Source: PublicInvest Research - 20 Sept 2019

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