SBH Marine Holdings Berhad (SBH,0300) will make its debut on the Bursa Ace Market today. SBH is a frozen seafood processing group involved in aquaculture shrimp farming, processing and selling frozen seafood, merchant trading of frozen processed seafood, and distributing aquaculture-related products. BUY with a fair value of RM0.24 based on FY24F PE of 15x, a 20% discount to global aquaculture players' average forward P/E due to its small market cap.

SBH operates via a vertical integration and strategic location setups, managing the entire value chain from shrimp cultivation to sales, ensuring quality and traceability. With plans to establish a Hatchery Centre, SBH aims to strengthen upstream operations, thus enhancing its market position. Its Kurau Plant's proximity to farms enables efficient processing and sourcing from external suppliers and local fishermen.

SBH is primed for growth with its expansion strategy in aquaculture shrimp farming and the construction of a new seafood processing plant. The expected commissioning of the new plant by 2Q FY26 will double annual production capacity to 8,800 tonnes. This expansion not only promises to boost profit margins but also significantly reduce reliance on third-party suppliers, dropping from 82% to 48%.

According to Protégé, Malaysian frozen seafood exports are anticipated to grow at a CAGR of 5.2% from 2023 to 2027. With 93% of SBH’s sales coming from international markets, including South Korea, Italy, Taiwan, Turkey, and France, the company is well-positioned to capitalize on the rising demand. Additionally, driven by (i) population growth, (ii) increasing consumer health awareness, and (iii) rising prosperity, there is a notable uptick in frozen seafood consumption.

We expect FY23-FY26F earnings to grow at CAGR of 12%, underpinned by (i) expansion plans in aquaculture and seafood processing, (ii) venture further upstream into shrimp hatchery to ensure a sustainable supply of shrimp larvae and (iii) increase in demand from existing customers, and (iv) efforts to secure potential new customers through participation in overseas exhibitions and trade shows. In addition, SBH has a healthy balance sheet, with a gearing ratio of 0.02x as of Dec FY23, a status expected to persist post IPO.

Source: Rakuten Research - 8 Apr 2024

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