• SSF is involved in the retail of furniture, home décor and home living products. SSF has 41 outlets as of FY23 in shopping malls and commercial areas in various cities in Malaysia.

• SSF plans to expand 18 additional outlets by 2026, which should provide them with a decent boost in top line and bottom line going forward.

• At the IPO offer price of RM0.25, SSF is trading at 12.5x based on FY23 core net EPS of 2.1 sen. Meanwhile, SSF’s forward P/E valuation for FY24-25f is estimated at 11.5x and 10.9x, respectively.

• We arrived at our fair value of RM0.335 (34.1% potential upside from its IPO price) by ascribing a target P/E of 15.0x to our forecasted mid-FY24f EPS of 2.23 sen. The ascribed P/E is a discount of 32% to the Consumer Discretionary Distribution & Retail industry of P/E of 22.1x given its smaller market cap position.

Company Background

• Established in 1989, SSF Home Group Berhad (SSF) is principally involved in the retail of furniture, home décor and home living products via its 41 retail outlets chain in shopping malls and commercial areas in various cities in Malaysia, as well as on their e-commerce website. SSF offers a comprehensive range of furniture, home décor and home living products for use in various applications and settings.

• Currently, SSF has 28 supply partners enabling SSF to offer a broad range of products to appeal to the mass market and there are more than 89,000 active members in SSF’s loyalty programme.

• The 41 retail stores are under the brand names of “SSFHOME”, “SSF-Great Lifestyle Made Affordable”, and an e-commerce site under the “SSF” brand.

• In FY23, the group’s revenue was RM174.5m, with the different segments of furniture, home décor, home living and others, contributing 53.5%, 21.8%, 20.1% and 4.6% to total revenue respectively. The revenue contributions have remained relatively constant for the past 4 years. The revenue contribution based on geographical locations namely the central, northern, southern, eastern, east Malaysia regions are 42.8%, 15.0%, 17.2%, 11.7%, 12.8% respectively, while the ecommerce segment contributes to the reamaining 0.5% of sales.

• Business strategies adopted by SSF are by having stores of different formats and sizes to cater to a wider audience, and visual merchandising such as window, house and concept displays to showcase their creative designs. Furthermore, they offer monetary discounts to active members, who are customers that has subscribed to the loyalty program membership for a fee of RM99.90. There are currently over 89,000 active members and they contribute to over 90% of SSF’s revenue.

Industry Overview (from Protégé Associates)

• In the non-grocery retail segment within the retail industry. SSF belongs under the retailer segment where they stand in between the manufacturers and the end users. SSF belongs to the middle-upper affordability segment.

• From 2024 to 2027, the home furnishing retail industry is projected to grow at a CAGR of 9.3% from RM50.25bn in 2023 to RM73.17bn in 2027, supported by demand factors such as:
  i. the increasing demand for smart home furnishings,
  ii. recovery in the local property market,
  iii. the growing population and affluence of Malaysians.

• The home furnishing retail industry in Malaysia is highly competitive and saturated there are more than 35,000 players in the industry in 2022. For the FYE 30 April 2023, SHG generated revenue of RM174.47m, which is equivalent to 0.4% share of the home furnishing retail industry in Malaysia of RM46.93bn in 2022.

Investment merits

• Solid presence in Malaysia. SSF established a network of 41 retail outlets reaching a large base of customers across Malaysia. Meanwhile, SSF’s established reputation over the years has helped to bring in new customers and maintain patronage from existing customers. Besides, SSF’s size provides economies of scale benefits, thus reducing fixed costs and the means to offer more affordable products, which helps the group to capture the mass market.

• Expansion plans in Malaysia. Out of the RM50.00m IPO proceeds, 70.4% or RM35.19m will be used to set-up 18 new retail outlets nationwide which will increase SSF’s brand visibility and customer base. In Fig #7, the table shows the current and expansion plans for SSF, Peninsular Malaysia will have 53 outlets (from 37) and East Malaysia will have 6 outlets (from 4) with a total of 59 outlets countrywide.

• Over the years, SSF has established a strong GP margin of more than 50%. Thus, the sales growth from the expansion coupled with the sturdy margins will provide growth in SSF’s profits.

Financials

• Slowdown in FY22… SSF recorded revenue of RM161.0m (-22.6% YoY) and its net profit fell by 46% due to (i) high base effect following the resumption of consumer activities in FY21 post covid lockdown and (ii) a slowdown in consumer spending patterns due to the high interest rate environment towards the end of 2022.

• …but should grow in tandem with its expansion plans. We forecast SSF’s revenue to grow at 15% and 18% to RM200.6-236.8m for FY24-25f supported by (i) expansion of estimated 12 stores by end of FY25. Meanwhile, we project its net profit to grow at a rate of 2.6-6.3% to RM16.4-17.5m for FY24-25f.

Valuation

• At the IPO offer price of RM0.25, SSF is trading at 12.5x based on FY23 core net EPS of 2.1 sen. Meanwhile, SSF’s forward P/E valuation for FY24-25f is estimated at 11.5x and 10.9x, respectively.

• We arrived at our fair value of RM0.335 (34.1% potential upside from its IPO price) by ascribing a target P/E of 15.0x to our forecasted mid-FY25f EPS of 2.23 sen, where the ascribed P/E is a discount of 32% to the Consumer Discretionary Distribution & Retail industry of P/E of 22.1x given its smaller market cap position.

• SSF currently does not have a formal dividend policy, however the management may implement one in the future.

Investment risks

• Dependent on the branding and reputation of the “SSF” brand, logo and trademarks have brand value and recognition that is vital for the continued growth of SSF’s business. Therefore, any negative publicity on SSF’s brand may adversely affect the preference of shoppers.

• Potential slowdown in consumer spending. SSF belongs to the retail sector, and the growth in FY20-22 was mainly due to the revenge spendings post Covid-19 lockdowns. However, the current elevated inflationary and interest rate environment could reduce consumer’s willingness to purchase or upgrade non-essential items such as furniture, home décor, etc.

Source: Mplus Research - 12 Oct 2023