Company Background. SDS Group (SDS) is primarily involved in the manufacturing and distribution of bakery products. It operates under 2 main business segments: retail and wholesale. SDS grew from its Johor homebase to throughout Peninsular Malaysia with its 3 brands, namely the retail brand “S.D.S” and 2 wholesale brands, “Top Baker” and “Daily’s”.

Prospects. (i) Retail segment: Adding more new outlets (cafeteria & bakery) in the central/southern regions of Peninsular Malaysia and upgrading its online store/platform to offer a wide range of products, (ii) Wholesale segment: Expanding its geographical footprint and logistic fleet across Malaysia with new distribution centres - currently the group has 21 distribution centres covering 10 states in Peninsular Malaysia, (iii) The research & development (R&D) arm of the group continues to introduce new F&B offerings to meet customer tastes and expectations, and (iv) Recent acquisition of 2 pieces of land in Johor as part of a long-term strategic plan to expand its manufacturing facilities.

Financial Performance. In 1QFY24, SDS reported higher revenue of RM71.3mil (+17% YoY) with a PAT of RM5mil (+8.7% YoY). This was mainly due to the increase in revenue from the wholesale segment through continuing efforts in expansion of customer base and delivery fleet, better sales product mix and increased demand in retail channels.

Valuation. SDS is trading at an attractive trailing P/E of 10.7x, which is lower than its 5-year historical average of 18.4x and Bursa Consumer Index’s 17.7x currently. As a comparison, Hup Seng Industries, involved in the production/sale of biscuits, confectionery food items and beverages, trades at a much higher FY24F P/E of 16.2x.

Technical Analysis. SDS may trend higher after it surged to a 3-month high and closed above the RM0.63 resistance 2 sessions ago. As the 20-day and 50-day EMAs are converging now and likely to confirm a bullish crossover soon, the stock looks positive in the near term. A bullish bias may emerge above the RM0.63 level, with stop-loss set at RM0.57, below the 6 Oct low. Towards the upside, near-term resistance level is seen at RM0.70, followed by RM0.75.

Source: AmInvest Research - 14 Nov 2023