SSF Home Group Bhd (SSF-Stock code 0287) will be debuting on Bursa ACE Market today. The company principally retails furniture, home décor and home living products through its local retail and online channels. Leveraging on its expansion plan and improved prospects within the local property market, we expect SSF to register net earnings of RM18.4m and RM20m for FY24 and F25 respectively. BUY with a TP of RM0.30 based on 13x PER over FY24 EPS of 2.3sen or a 30% discount to its listed industry peers of 19x given its smaller market capitalisation.

SSF's retail sales channel is supported by a nationwide network of 41 outlets, with a total retail space of >1m sqft. Notably, its average revenue contribution per outlet has increased from RM3.3m to RM4m (3-year CAGR of 7%) over FY20-FY23 period. The group has centralised its warehousing operations at Hap Seng Business Park, Selangor, streamlining its distribution support for retail operations. With a solid 34-year track record, SSF has garnered >86k active member as of Aug- 2023 all of whom are paying members. These dedicated members contributed 93% of the FY23 revenue, with an average spending of approximately RM1,811 per member, compared to RM1,181 in FY20, reflecting a notable 3-year CAGR of 15.3%.

YTD, SSF has established a diverse and extensive supplier network that includes local manufacturers, trading houses, plus an international connection in Hong Kong, allowing SSF to access a wider array of products and streamlining its supply chain thus enhancing overall operational efficiency by enabling direct delivery of products to their central warehouse. Capitalizing on its large inventory and high product mix, SSF is able to target both the middle to high-end and the mass markets, while mitigating product shortages and negotiating for favorable terms with the suppliers.

To further strengthen its presence, SSF has allocated RM35.2m (>70%) of IPO proceeds to establish 18 new retail outlets (+43%) particularly in the Northern and Southern regions due to improving consumer spending. Among these, 6 are expected to be operational by FY24 with another 6 in FY25, and the remaining 6 in FY26. These initiatives are geared toward expanding its market share, which currently stands at 0.4% according to the IMR report.

In tandem with its extensive expansion plan, SSF intends to enhance its IT infrastructure by 4QCY23 which includes (i) migration to new EPR system which allows better data tracking and analytics; (ii) enhancement of its e-commerce website to improve user interfaces; and (iii) upgrading mobile application for easier payment module. We believe these will help in customer satisfaction, potentially leading to higher customer retention.

SSF’s balance sheet is solid with a net cash position of RM36.5m as of 1QFY24. The company has no dividend policy at this juncture.

Source: Rakuten Research - 12 Oct 2023

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