PETALING JAYA: Ahead of Sorento Capital Bhd’s ACE Market listing this month, analysts have ascribed higher fair values for the stock compared with its initial public offering (IPO) price of 37 sen.
In a non-rated report, TA Research set the fair value at 42 sen, representing a premium of 13.5%.
The research house, which assigned a forward valuation of 11 times based on estimated earnings per share for financial year 2025 (FY25), said there is no listed company locally that is directly comparable with Sorento.
Sorento is primarily involved in the marketing, distribution and sale of bathroom and kitchen sanitary ware.
TA Research highlighted three main competitive advantages for Sorento: a proven track record, ability to offer a wide range of products and an experienced management team.
“We estimate the group recording earnings growth of 21.5%, 19.7% and 19.9% to RM29.7mil, RM35.6mil, and RM42.6mil for FY25, FY26 and FY27, respectively, supported by the expansion of its dealer network as well as a better industry outlook according to an independent market research report.
“The local market is expected to remain the main revenue generator for the group,” the research house said.
In a separate note, RHB Research ascribed a higher fair value of 47 sen for the stock.
“We project a three-year earnings compounded growth annual return of 25.5% and ascribe a 13 times price-earnings multiple to its FY25 earnings.”
RHB Research assumes a dividend payout of 20% of Sorento’s profit after tax, even though the company does not have a dividend policy.
At 20%, this translates to yields of 2.1% and 2.5% in FY25 and FY26, respectively.
The research firm further noted that Sorento’s leadership in the sanitary-ware industry, combined with the ringgit’s strengthening against the Chinese yuan, have provided a competitive edge in terms of cost efficiency.
“As key raw materials are imported from China, the stronger ringgit has led to lower procurement costs, enhancing profit margins.
“Additionally, Sorento raised its selling prices in August this year, further improving profitability while maintaining its market leadership position.
“An increased number of exclusive Sorento retail stores will lead to double wins in the form of amplified brand recognition and wider distribution reach nationwide to accelerate its market share gain.
“Over the next three years, the company aims to expand its current dealer network of 664 by recruiting another 200 new dealers across Malaysia,” RHB Research added.
Sorento aims to raise RM57.4mil from the public issue of 155 million new shares on the ACE Market.
The proposed IPO also comprised an offer for sale of up to 74 million existing shares.
Of the RM57.4mil, about 54.7% or RM31.35mil will be utilised as working capital for the purchase of inventory.
Additionally, a total of RM6mil will be allocated towards branding and promotional marketing and another RM6mil for the expansion of the dealer network.
The remainder of the proceeds will be allocated for repayment of bank borrowings and estimated listing expenses at RM9mil and RM5mil, respectively.
Sorento’s listing has been scheduled for Oct 28.
