Malacca Securities Sdn Bhd has initiated coverage on ACE Market-bound HSS Holdings Bhd with a fair value of 23 sen, implying 27.8% upside from its IPO price of 18 sen, underpinned by margin expansion and IPO-driven manufacturing automation.
The research house said HSS Holdings’ gross margin has steadily improved from 15.6% in FY22-FY23 to 18.8% in FY25, driven by a rising contribution from higher-margin in-house manufacturing, which increased from RM7.4 million (5.8% of revenue) in FY22 to RM23.9 million (16.6%) in FY25.
It expects this trend to continue as the group deploys RM2.6 million of IPO proceeds to expand automation across its manufacturing base, including new production lines for biscuits, cookies and cakes. The upgrades are expected to further shift the revenue mix towards in-house production and support continued margin expansion.
A key near-term catalyst, according to Malacca Securities, will be the installation of a cookie forming-and-loading system at Manufacturing Facility 1 and an automated cake line at Manufacturing Facility 2. These additions will enable HSS Holdings to internalise currently outsourced daily-consumption cookie production, improving cost efficiency and year-round capacity utilisation across FY26-FY27.
Beyond manufacturing, the group’s distribution network spans 330 wholesalers, five distributors and 117 retailers across Malaysia and key regional markets including Singapore, Australia and Indonesia. It also operates a portfolio of 11 bakery brands with strong placement in supermarkets and hypermarkets.
Malacca Securities also highlighted a planned expansion into premium tourism-driven products ahead of Visit Malaysia 2026, including gift-oriented butter cakes, sponge cakes and layered cakes. The initiative is expected to support higher average selling prices and diversify revenue through tourist-centric channels such as airports and heritage sites.
Valuation-wise, Malacca Securities shared that the 23 sen fair value is based on a 12 times FY27f price-to-earnings multiple applied to earnings per share of 1.94 sen.
The research house said the valuation sits at the lower end of peer ranges of 12.1 times to 13.8 times, reflecting HSS Holdings’ smaller market capitalisation and lower net profit margin of 5.9% versus peers’ 9.2%.
However, it noted that earnings re-rating potential could be supported by improving operating leverage and manufacturing integration as in-house production scales up.
Key risks include heavy reliance on third-party manufacturers, which still account for 83.5% of FY25 revenue, exposure to volatile raw material prices such as flour, sugar and edible oils, and seasonal demand fluctuations tied to festive consumption cycles.
