PETALING JAYA: SDS Group Bhd
is well-positioned to capitalise on the strong demand for bread as well as food and beverage (F&B) services, driven by a growing population in the country, tourist arrivals, resilient domestic spending.
According to TA Research, the Johor-based bakery is expanding to the Klang Valley in its efforts to support long-term revenue growth.
The group also targets to open one to five new outlets over the next three years.
On the wholesale front, SDS is enhancing its distribution network to improve product-reach.
SDS manufactures and distributes bakery products under the Top Baker and Daily’s brands for the wholesale market in Peninsular Malaysia and Singapore.
It operates 42 F&B outlets domestically under the names SDS Cafe and Fanpekka Cafe.
In initiating its coverage on SDS, TA Research said the group’s investment merits include strategic expansion into the central region and cost pass-through capabilities.
It is poised to benefit from the Johor-Singapore Special Economic Zone initiative, which is expected to increase customer traffic from Singapore.
On the group’s earnings outlook, the research house said: “We project turnover to grow to RM365.6mil moving into the financial year 2026 (FY26).
“This will be supported by price adjustments implemented in July and August 2025, and improved efficiency of its delivery fleet, which is expected to drive sales momentum.”
That said, rising operational costs stemming from higher minimum wage, the inclusion of the sales and service tax on rental and leasing services as well as a prolonged delivery fleet consolidation process, remained key concerns.
Looking ahead to FY27 and FY28, TA Research noted: “We forecast core earnings growth of 16.1% and 10.5%, respectively.
“This growth will be driven by an expanding customer base supported by the group’s planned entry into the central region, the addition of four new F&B outlets annually, improved product varieties which have a longer shelf life and greater efficiency in the delivery fleet.”
In addition, the group had maintained a robust balance sheet with a net cash position of RM23.3mil as of FY25.
Net assets stood at RM228.5mil, translating into a net asset value per share of 30 sen.
While SDS did not have a formal dividend policy, TA Research said the group had maintained a payout ratio of at least 20% over the past two years in FY24 and FY25.
“We forecast a dividend payout ratio of 25% for FY26 to FY28, translating into a dividend yield of 2% to 2.5% over the period.
“The sustainability of this payout is supported by the group’s solid net cash position of RM23.3mil as of FY25,” said the research house.
However, while SDS’ long-term fundamentals remain solid, the near-term catalysts appeared limited given its conservative expansion strategy, rising operating costs and uncertain consumer sentiment.
TA Research has a “hold” rating on the stock with a target price of 85 sen per share. The key risks include a competitive landscape, dependence on foreign labour and the price fluctuation of raw materials.
