An unheralded gem. SCC Holdings Berhad (SCC), a modest company which was listed since 2010, primarily operates under its vision of ‘going green’ with two core divisions: (i) Animal Health Products Division (AHPD) and (ii) Foodservice Equipment Division (FED). Under its AHPD, the Group primarily conducts sales, marketing and distribution of non-antibiotic animal health products for livestock feeds. On the other hand, the Group acts as a one-stop-solution distributor of food service equipments in the F&B industry under FED, which includes provision of installation, service and maintenance and supply of ingredients.

Food supplies segment as the new catalyst. The Group ventured into food supplies manufacturing in FY13 under its in-house brand name Cook Master and recorded turnover of RM1.3m in five months. The segment has since seen rapid progress as the Group’s R&D team worked closely with customers to develop various new food recipes and premix ingredients, which eventually could lead to expansion of the retailers’ food menu. Currently, the Group is partnering with a reputable food retailer to ride with the latter’s aggressive marketing development plans, where management believes could be the earnings driver moving forward. SCC has also secured the Halal certification for its premix food ingredients and this will help facilitate the Group’s venture into the Halal Food market.

Exploiting opportunities in the new ruling for green feed solution. The Government has the intention to enforce a new ruling on farmers to only use green feed solution. This is to prevent livestock from consuming animal feed that potentially contains overdose of antibiotics which residual could affect the immune system of human on over consumption. In tandem with the Group’s vision to bring green and wellness products to the industry, SCC could greatly benefit from this new ruling as they currently work closely with leading biotechnology companies to develop non-antibiotic and natural feed additives, which is better and healthier for the growth of livestock.

Healthy balance sheet with unused IPO proceeds. SCC is currently sitting on a net cash pile of RM15.7m, implying 36.7 sen/share or 23.4% of the group’s market capitalisation of RM67.1m. Besides, SCC also has unutilised IPO proceeds of RM2.3m, which the Group has allocated for capital expenditures and working capital purposes. Backed by the strong balance sheet, we believe that the group will be able to finance its new food supplies segment expansion with ease.

An attractive minimum dividend payout policy of 35%. In line with its minimum dividend payout policy of 35%, SCC has been rewarding its shareholders by declaring 1.0-16.5 sen annual DPS since FY10, translating into 1.0-11.0% dividend yield. In view of the good prospect and healthy cash-flow, we understand the Group intends to maintain its minimum dividend payout policy moving forward. Based on a targeted dividend payout of 35%, we expect the group to distribute 4.9 sen-5.7 sen DPS in FY14-FY15, translating into dividend yields of 3.2%-3.7%.

Non-rated with a fair value of RM1.68, based on a targeted 12x CY14 PER (in line with the FBM Small Cap forward PER of 12.4x). While the group’s valuation appears to provide limited upside from here, its strong balance sheet and attractive dividend payout remain are favoured by investors. We will relook the stock when the group’s valuation falls to a more attractive level.

Source: Kenanga