Investment Highlights

• Established track record. SSF has been active in the home furnishing industry for over 30 years. It has established a strong reputation of product offerings through rigorous supplier selection with annual performance evaluations.

• Expansion plans. Currently, SSF operates 41 retail outlets and plans to expand by another 18 outlets to 59 outlets by the end of 2026. The company has allocated RM14.2 million from the IPO proceeds to cover the expected capital expenditure for these new outlets.

• Boosted by recovery in local residential property market. In 2022, the local residential property market saw an increase in both total transaction volume and total transaction value. The market for affordable residential properties is anticipated to remain strong, driven by continued government efforts to enhance their availability. This will boost demand for SSF’s products.

• Earnings growth momentum. Moving forward, we expect SSF’s revenue could reach RM187.3 (+7% yoy), RM212.8m (+14% yoy) and RM251.1m (+18% yoy) in FY2024f, FY2025f and FY2026f, respectively. This is underpinned by the new store openings (18 new outlets) and the expected positive demand from the smart-home concept and recovery in the property industry.

• Robust margins among the retail industry. Over the years, SSF has recorded a strong GP margin of over more than 50%. Meanwhile, its PAT margin stood at 9%-15% range.

• Large base of loyal customers. SSF boasts 82,000 active members who have registered for its membership program, all of whom are paying members. Valuation /

Recommendation

• We derive a target price of RM0.34 for SSF Home Group Berhad. Our valuation is based on 15x PER of the Group’s FY2024f EPS of 2.3 sen which is below the Bursa Malaysia Consumer Product and Services PER at 20x and its peers average PER at 15.5x. The ascribed PER of 26% discount from the Bursa Malaysia Consumer Product and Services is due to its unattractive market share at 0.4% and smaller market cap as compared to its peers. However, we hold a positive outlook for SSF Home Group Berhad due to its established branding, strong presence across Malaysia, and strategic store expansion plans.

Risks

• Exposed to logistics disruption.

• Risk in freight rates fluctuation.

• May be affected by product defects.

• Ability to secure prime locations for retail outlets.

• Possessing obsolete inventories.

• Forex fluctuation.

Source: JF Apex Securities Research - 25 Sept 2023