Sorento Capital Bhd (SORENTO) markets, distributes, and sells a wide range of bathroom and kitchen sanitary wares, featuring its house brands like 'Sorento' (flagship), 'Mocha' 'Cabana' and 'i-Born' Additionally, the Group is an authorised distributor for foreign brands such as 'Bravat' (non-exclusive) and 'Infinity' (exclusive) in Malaysia. SORENTO's product range caters to both residential and commercial customers, positioning the Group as a one-stop solution provider. The Group has built extensive distribution channels, targeting business-to-business (B2B) customers through its network of distributors (e.g. dealers (wholesalers and retailers) and project customers (property developers' trading/ purchasing arms, trading companies, contractors and interior designers)) as well as business-toconsumer (B2C) customers through Lazada and Shopee. SORENTO outsources the manufacturing of its house brands to third-party manufacturers. For third-party branded products, SORENTO purchases directly from the product principals.

SORENTO aims to grow market share by strengthening support for existing dealers, expanding its network with 200 new dealers (FY24: 664), and offering subsidies for marketing, product displays, and store renovations. Moreover, the Group plans to boost revenue through large-volume, project-based sales in residential, affordable housing, hotels, and office building segments. Also, SORENTO plans to roll out a brand elevation initiative to uplift its brand positioning. We derive a fair value of RM0.48 based on a 12x PE multiple to its FY26F EPS of 4.0sen. The IPO is expected to raise approximately RM57.4m from the issuance of 155.0m new shares. Besides utilising 54.7% of the proceeds as working capital, two portions of 10.5% each are allocated for branding and promotional marketing, as well as expansion of dealer network and enhancement of distribution reach, respectively.

• Growth drivers. SORENTO’s growth will be driven by: i) strengthening its support to existing dealers and expanding its network of dealers, ii) growing its revenue from project-based sales, and iii) enhancing its brand recognition.

• Competitive strengths. SORENTO’s competitive strengths include: i) established track record, ii) extensive product range, iii) wide customer base, and iv) experienced management team.

• Catalysts. Key drivers may include: i) growth of the property market as well as renovation activities, which is fueled by economic growth, population growth, increasing urbanisation and rising affluence of the population, as well as ii) product innovation and increasingly sophisticated consumer lifestyle and aesthetic preferences.

• Key risks. Key downside risks, among others, include: i) competition, ii) dependency on home improvement and renovation activities as well as the property sector, iii) dependency on its third-party manufacturers, iv) potential product liability claims, and v) foreign exchange fluctuation.

Source: PublicInvest Research - 14 Oct 2024