SDS Group (SDS)’s wholesales segment contributed two thirds of total revenue in the financial year 2022. It has a wide distribution network across Peninsular Malaysia.
The organisation will be adding another 25 trucks in financial year 2024 to its existing fleet of 281 as at Apr 2023. The large fleet allows SDS to increase the distribution frequencies at its established markets and expand geographically, said Kenanga Research (Kenanga) in a recent report.
SDS plans to add 3 to 5 retail outlets in financial year 2024 versus 36 outlets as at the end of quarter three financial year 2023. The new outlet will be located in the Klang Valley and Johor Bahru, which will be launched by quarter three calendar year 2023.
It recently announced the acquisition of two pieces of land measuring a total of 6.9 acres in Tebrau, Johor, for RM 9.4 million, where it plans to construct a new facility for future demand.
Meanwhile, SDS is adding 2 to 3 new stock-keeping units with new flavours to boost sales. Kenanga understands that it recently launched some new croissant bread in Johor Bahru to gauge the response from the market.
“We reiterate ADD with a revised future value of RM1.02, premised on a 13x financial year 2024 future earnings per share, which is in line with the domestic staple food producer peers’ one-year price-to-earnings ratio mean of 13x,” said Kenanga.
Kenanga believes this is justified by its long-term expansion plans and affordable price advantage for the B40 group. Nevertheless, the valuation is considered inexpensive, reflective of high earnings growth potential compared to consensus peers’ projection of 12% in financial year 2023. A return on equity of 28% also outweighs peers’ mid-teens marking.
“There is no change to our trading price based on environmental, social and governance given a 3-star rating as appraised by us,” said Kenanga.
Risks to Kenanga include its inability to raise prices for certain price-controlled products, low entry barriers for bread and bakery products, and the inability to make significant inroads into markets beyond its home turf in Johor.
