Company Background. SDS Group (SDS) specialises in manufacturing and retailing bakery products. The group operates through 2 main segments: retail and wholesale. Originating in Johor, SDS has expanded across Peninsular Malaysia (PM) with 3 brands: the retail brand “SDS” and wholesale brands “Top Baker” and “Daily’s.” The retail segment offers products through outlets with 3 different concepts: (i) bakery, (ii) cafeteria, and (iii) bakery-cum-cafeteria. Meanwhile, Top Baker and Daily’s serve the mass market in PM and Singapore.

Prospects. (i) Establishing new retail outlets in strategic locations, particularly in the central/southern regions of PM, cater to the increased flow of tourists to the Klang Valley and Johor Bahru, (ii) Expanding its delivery fleet to provide wider geographical coverage for the wholesale segment, while also optimising sales distribution routes and supply frequency to meet customer expectations. The group currently operates over 20 distribution centres across 10 states in PM, (iii) Broaden product range and invest in R&D for freshness and variety, including innovations like food warmer displays and ready-to-eat/drink products, and (iv) Recent acquisition of 3 parcels of land in Johor is part of a long-term strategic plan to expand manufacturing facilities.

Financial Performance. In FY24, SDS reported higher revenue of RM324mil (+14.2% YoY) with a PAT of RM32.6mil (+32.7% YoY). This was mainly due to increased revenue and improved gross profit margins in the retail/wholesale segments, supported by higher sales prices and stabilised raw material costs.

Valuation. SDS is trading at an attractive trailing P/E of 12.2x, which is lower than its 5-year historical average of 17.3x and Bursa Consumer Index’s 15.4x currently. As a comparison, Hup Seng Industries, involved in the production/sale of biscuits, confectionery food items and beverages, trades at a much higher FY25F P/E of 17.6x.

Technical Analysis. We expect further upside for SDS after it surged above the key RM0.93 resistance with a long positive candle yesterday. As the stock also surged to a fresh new historical high coupled with rising EMAs, a bullish outlook can be expected here. A bullish bias may emerge above the RM0.93 level with stop-loss set at RM0.87, below the 50-day EMA. Towards the upside, nearterm resistance level is seen at RM1.20, followed by RM1.30.

Source: AmInvest Research - 2 Aug 2024