Sik Cheong Berhad (SCB, 0316) is debuting on the Ace Market today. The company is a prominent player in the repackaging, marketing, and distribution of RBD palm olein oil. The company is strategically positioned within the downstream palm oil industry to capitalize on the growing demand for vegetable oils, particularly in Malaysia. SCB is also diversifying its product offerings to meet the evolving needs of consumers and industry players alike. We expect SCB to register net earnings of RM9.0m and RM11.2m for FY3/25 and FY3/26, respectively. BUY with a fair value of RM0.34 based on a 13x PER, (3-year peer’s average of similar scale) over FY3/26 EPS.

SCB plans to expand its packaging operations at Factory No. 9 in Ampang, Selangor, by transforming the current single-storey building into a three-storey facility. This development will significantly increase production capacity to 9,470 metric tons annually, to meet the growing demand for high oleic soybean oil and RBD palm olein oil.

The company plans to extend its market reach beyond its current strongholds in Kuala Lumpur and Selangor to neighbouring states such as Perak, Negeri Sembilan, Melaka, and Pahang. Leveraging the proximity of its Factory No. 11 in Ampang, the company aims to efficiently deliver products to these new markets. To support this geographical expansion, SCB will acquire five new delivery trucks, ensuring prompt and reliable distribution to its growing customer base across these regions.

In an effort to reduce its reliance on RBD palm olein oil products, SCB is expanding its product portfolio to include high oleic soybean oil. This move is driven by the growing demand for healthier edible oils, as high oleic soybean oil is rich in Omega-3 and Omega-6 fatty acids while having lower saturated fat content. The company anticipates that this new product line will cater to a broader market, including households, hotel, restaurant, and catering operators, offering them a cost-effective yet healthier oil alternative. The expansion into soybean oil will not only diversify SCB’s revenue streams but also position the company as a versatile player in the edible oil market.

According to the independent market research done by IMR, the RBD palm olein oil repackaging industry is projected to continue growing at a CAGR of 20.9% from 2024 to 2026, driven by continuous demand from consumers and the food and beverage sector. As a key player in this industry, SCB is well-positioned to benefit from these trends, particularly as the company expands both its product offerings and geographical reach.

As of FY3/24, SCB had a net cash position of RM6.8m. We expect this level to remain consistent post-IPO as the proceeds will be utilised for business expansion. Though the company does not have a fixed dividend policy, we expect SCB to pay dividend of 0.5sen and 0.7sen for FY3/24 and FY3/26 assuming a 20% payout ratio. This will translate into yields of 2.0% and 2.4% respectively.

Source: Rakuten Research - 13 Aug 2024

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