Lee Swee Kiat Group (8079) is renowned as the foremost manufacturer of natural latex mattresses in Malaysia. The company's production spectrum encompasses both finished mattresses and semi-finished goods, including latex foam. Backed by its strong market position and growth initiatives, BUY with a TP of RM1.41 based on FY24F PE of 13x or +1SD from its 3-year forward PE mean.

LSK's strategic pivot towards B2C sales since 2011 has solidified its position as Malaysia's premier end-to-end mattress provider, capturing a commanding 61% share of the B2C market. This shift not only bolstered profit margins but also cultivated a more intimate rapport with customers as illustrated by the recent surge in local sales. In addition, LSK's collaboration with Cuckoo, leveraging the Napure rental model to penetrate the Malay market, has been instrumental in augmenting its domestic sales strategy. With 11,000 mattresses rented out last year and an ambitious target of 17,000 units for the current year, LSK showcases the efficacy of this partnership in driving sales growth. As LSK enters its fourth year of collaboration with Cuckoo, the introduction of two new products is poised to elevate rental performance to unprecedented heights, fortifying LSK's market presence and amplifying its reach across diverse consumer segments. In tandem with the resurgence in local sales, LSK has witnessed a notable revival in its export activities fuelled by intensified overseas marketing initiatives and active engagements in international trade events. With a strategic goal of reaching an 80% utilization rate by the end of 2024, LSK is leveraging the increasing demand for eco-friendly products while strengthening its partnerships with clients in regions like Korea and Europe.

In anticipation of escalating demand and to accommodate future growth, LSK is acquiring five acres of land adjacent to its existing facilities in Klang. With the current factories operating at 80% - 90% capacity, this expansion will bolster production capacity and streamline operations.

Given the buoyant mattress market in Malaysia, driven by rising health-conscious consumer demand, LSK's collaboration with Cuckoo, has significantly expanded its market reach and brand recognition. As a result, we anticipate FY23-FY26F earnings growth at a CAGR of 23%. Additionally, LSK’s balance sheet is solid with a net cash position as of 4QFY23. Coupled with 5.7% FY24F dividend yield, LSK is currently an attractive proposition at 8.8x FY24F P/E.

Source: Rakuten Research - 24 Apr 2024

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