SDS cooks up a storm, more upside expected

Bakery products manufacturer SDS Group Bhd has cooked up an amazing run to touch its all-time high of RM1 recently. The counter succumbed to profit taking activities but still held up relatively well at above 90 sen level.

This is a massive gain for investors who bought the stock at IPO price of 23 sen in 2019. In the past year, the counter rose 50% to close at 93 sen on Aug 2 from a low of 58 sen last year. Expectations are for the counter to continue its good run having surged above its key resistance of 93 sen.

What is keeping investors excited?

There are a couple of factors. Firstly is its expansion plans as it is setting up new retail outlets in strategic locations, particularly in the central/southern regions in Malaysia.

It is catering to the increased flow of tourists to the Klang Valley and Johor Bahru. Not only that, SDS is adding its delivery fleet in order to cover a wider geographical area for the wholesale segment. This will also optimise sales distribution routes and supply frequency to meet customer expectations.

The group currently operates over 20 distribution centres across 10 states in Peninsular Malaysia.

Constant innovation is also key for SDS. It continues to broaden product range and invest in R&D for freshness and variety including innovations like food warmer displays and ready-to-eat / drink products. Also not forgetting its manufacturing facilities expansion as it recently acquired 3 parcels of land in Johor.

Financially, SDS has fared reasonably well as it reported a 14.2% year-on-year jump in revenue to RM324mil In FY24, with a 32.7% rise in net profit to RM32.6mi.

This was mainly due to increased revenue and improved gross profit margins in the retail/ wholesale segments, supported by higher sales prices and stabilised raw material costs.

In terms of valuation, investors may find SDS attractive given its trailing P/E of 12.2x compared to biscuits and confectionery maker Hup Seng Industries which is trading at a much higher FY25F P/E of 17.6x.