Through its subsidiaries, Sik Cheong Bhd (SCB) is principally involved in: i) repackaging, marketing and distribution of edible oil and other food products; and iii) distribution of lamp oil and other trading products. The Group began repackaging, marketing and distributing refined, bleached and deodorised (RBD) palm olein oil in polybags since 1987 (under Sik Cheong (a partnership business)). Upon the introduction of the Cooking Oil Stabilisation Scheme (COSS) by the Malaysian government in 2007 to stabilise the retail price of all types of cooking oil in 1kg polybags in Malaysia, SCB applied and obtained the quota to supply subsidised RBD palm olein cooking oil under the COSS. Following the launch of the Cooking Oil Price Control Subsidy Mechanism (MKHMM) programme by the government in 2021 to control the maximum retail price of palm cooking oil, SCB obtained quota to repackage, distribute and market RBD palm olein cooking oil under the said programme.Leveraging its experience and customer base to secure new orders and cross-sell other edible oils, SCB intends to expand its product range to include high oleic soybean oil due to increasing inquiries from food manufacturers and hotel operators. In order to facilitate expansion of its product range, SCB intends to set up a new packaging facility at one of its factories, and purchase machinery and equipment for repackaging of high oleic soybean oil. Beyond its current geographical market, mainly in Kuala Lumpur and Selangor, SCB intends to grow sales in states like Perak, Negeri Sembilan, Melaka, and Pahang due to their proximity to its facilities. We derive a fair value of RM0.33 based on a 11x PE multiple to its FY26F EPS of 3.0sen. The IPO is expected to raise approximately RM17.8m from the issuance of 66.0m new shares. Besides utilising 33.4% of the proceeds as working capital, 40.3% and 5.0% of the proceeds are allocated for facility expansion as well as purchase of new delivery trucks, respectively.

• Growth drivers. SCB’s growth will be driven by: i) expansion of its productrange, ii) expansion of its packaging facility, and iii) expansion of geographicalreach.

• Competitive strengths. SCB’s competitive strengths include: i) largecustomer base, ii) reliable and prompt delivery of products, iii) ability to caterto different needs and customer segments, iv) commitment to product quality,v) experienced key management team, and vi) sustainable business.

• Catalysts. Key drivers may include continuous demand for RBD palm oleinoil products and soybean oil due to: i) rising population, ii) governmentsubsidies, iii) affordability, and iv) easy accessibility.

• Key risks. Key downside risks, among others, include: i) competition, ii)volatility in prices and availability of materials and supplies, iii) inability tosource enough RBD palm olein oil at acceptable prices, iv) loss of registrationstatus under COSS, and v) dependency on a single product.

Source: PublicInvest Research - 29 Jul 2024