Johor based SDS Group Bhd (“SDS”), a manufacturer and distributor of bakery products cum food and beverages (“F&B”) outlets operator is slated for listing on the ACE market today. BUY with a target price of RM0.26 based on 11x PER FY21 as per Bursa Small Cap Index.

Having operated since 1987 and helmed by industry veteran Mr. Tan Kim Seng and Mr. Tan Kim Chai, SDS is a well-known brand in Johor. Its wholesale channel is anchored by brands like “Top Baker” and “Daily’s” to over 10,000 wholesale customers across west Malaysia together with manufacturing bakery products on original equipment manufacturer basis to customers in Singapore.

For the retail segment, SDS provides a range of bakery, confectionery and other F&B products to its 33 F&B outlets in Johor, including 6 AEON outlets in Johor under concessionary arrangements. The F&B outlets are operated under the concept of bakery, café and bakerycum-café carrying brands of “S.D.S” and “Fanpekka Café by S.D.S”, marking it the only listed wholesale bakery cum retail F&B outlets operator in Bursa Malaysia. Close to 70% of the total revenue is generated from the wholesale segment which garners higher gross profit margin to the group (~32%). To date, the group is supported by extensive logistics facilities with 19 depots across Peninsular Malaysia and 270 delivery vehicles for the wholesale distribution and F&B outlets.

SDS will utilise RM6m or 25% of the IPO proceeds to expand its geographical footprints outside Johor via purchasing of 18 new delivery vehicles to enhance its distribution network and setting up 8 new F&B outlets in the Klang Valley. 32.5% or RM7.8m will be allocated for general working capital while RM7m or 29.2% is set for bank borrowing repayments. Through internally generated fund, the group will also set up 2 new depots in Penang and Kedah to widen its exposure in the northern markets.

Following the listing, gearing level is set to improve from 1.3x to 0.7x. Underpinned by its geographical expansion, revenue is expected to grow by 9% and 13% in FY20 and FY21 respectively.

Source: Rakuten Research - 7 Oct 2019