• MYR0.195 FV based on 16x FY24F P/E. Panda Eco System looks to raiseMYR17.5m from its IPO to fund its business expansion, working capital, andnew solutions R&D. It is well-positioned to benefit from the Government’sdigitalisation push and Budget 2024’s MYR10m in digitalisation grants(MYR5k to SMEs and micro enterprises), and has a wide customer pool,comprehensive in-house solutions, and an asset-light business model. Its 3-year earnings CAGR of 12% (FY22-25) is driven by its business and productrange expansions, and growing addressable market.

• In-house developed retail management software. With the right expertisein both retail operations and IT software, Panda Eco’s retail managementeco-system enjoys a compelling competitive advantage – this is from itscapability in developing software in-house without relying on third-partysuppliers for software enhancements and new module integrations. PandaEco offers tailored localised retail solutions at competitive prices to meet thegrowing need and requirements of grocery retailers. Its retail managementsoftware is also compatible and able to integrate with major third-partysoftware and IT hardware.

• Potential cross-selling opportunities. Other than the core headquarters(HQ)-centralised management solutions – which acts as the first requirementfor the setting up of each retail store – Panda Eco also provides storeoperations, financial management, omni-channel engagements, and xBridgeB2B solutions that enable customers to progressively add on new modulesin line with their business growth. Its comprehensive range of solutions andmodularity allow the group to leverage on its existing customer base to crosssell its solutions. For instance, only 12 out of 130 retailers are subscribed toxBridge B2B solutions (which it has on-boarded numerous establishedmultinational corporation consumer products suppliers) – this providesfurther penetration opportunities.

• Sustainable earnings growth. In 2022, according to Arsta Research,Panda Eco garnered a 6% share of Malaysia’s retail management solutionsmarket that totalled MYR351.1m. We believe there is still ample room forgrowth. This is in addition to the potential diversification into other customersegments – eg F&B and smaller retailers – with some software tweaks.Panda Eco’s omni-channel engagement and xBridge B2B solutions – whichoffer remote accessibility and cross-platform mobility with multi-deviceresponsiveness – will ride on the coat-tails of the growing preference forcloud-based retail management, in our view. This is seen in its growingindustry size, having expanded to 55.3% in 2022 from 40.4% in 2018 (as apercentage of the total retail management solutions market).

• Earnings forecast and valuation. We project a 3-year earnings CAGR of12% and ascribe 16x P/E to its FY24F earnings to derive our FV ofMYR0.195. The valuation is in line with the 16x 2-year consensus P/E of theregional point of sale (POS) providers (Figure 5). Key risks: Loss of technicalpersonnel, cancellation of orders/delays in project deployment, and inabilityto protect ownership rights.

Source: RHB Securities Research - 15 Nov 2023