Financial Highlights

The following table sets out the financial highlights based on the combined statements of comprehensive income for FYE 2020 to 2023:

• The revenue increased from RM 129 million (FYE 2020) to its highest point of RM 208 million (FYE 2021) and then declined to RM 174 million (FYE 2023). The company mentioned that the decline in revenue is due to the cancellation of work-from-home (WFH) arrangements, which caused a decrease in the demand for furniture.
• The gross profit margin has remained around 54% to 55% over the past four years. Even though the revenue has declined, the management team has been able to maintain this gross profit margin. This also demonstrates the capability of the management. (Generally, a GP margin of 20% is considered high/ good).
• The PAT margin increased from 3.2% (FYE 2020) to its peak at 15.0% (FYE 2021) and then declined to approximately 9% to 10% by FYE 2022 and FYE 2023.
• The gearing ratio is 0.13 times, which falls within the healthy range. Therefore, the company is at lower risk of being involved in debt issues. (A good gearing ratio should be between 0.25 – 0.5).

Major customers and supplier

Major Clients

As a retailer, the customer base primarily comprises walk-in customers at retail outlets and customers who purchase products from their e-commerce website. The sales contribution from each customer as a percentage of the Group’s revenue is negligible. Therefore, the company is not dependent on any major customers as the customers are primarily end-consumers or individuals.

Major Suppliers

The company has a pool of 28 approved suppliers, which consist of 19 local manufacturers, 7 local trading houses, 1 local wholesaler and 1 trading house in Hong Kong. The top 5 suppliers for FYE 2023 are as follows:

The Group generally does not enter into long-term agreements or arrangements with its major suppliers as purchases from the Group’s suppliers are conducted on a purchase order basis. This allows the company to have the flexibility to source for quality products of different designs at competitive prices. The company is not dependent on any single major supplier and trading house as there are other suppliers available in the market, which provides similar products that can serve as replacements to its current list of suppliers.

To safeguard the reputation and prevent the brand name from being misused, the Group has procured undertakings from the approved suppliers as at LPD (which supply products carrying the “SSF®” logo to them) to, amongst others, undertake the following:

• to manufacture and/or sell any furniture, home décor or home living products with “SSF®” logo to the Group only, and not to any third parties; and
• to take all necessary and reasonable steps to ensure that all its third-party manufacturers or suppliers do not manufacture, sell and/ or supply any furniture, home décor or home living products carrying the “SSF®” logo to any other parties.

Industry Overview

According to the research report from “Protégé Associates, the COVID-19 pandemic which began in 2020 and the following social distancing measures to combat the situation had adversely affected the retail industry in Malaysia. As a part of the retail industry, the home furnishing retail industry was not spared from the negative impacts brought upon by the pandemic. The home furnishing retail industry declined by 9.7% to RM36.94 billion in 2020 during the peak of the pandemic.

In 2021, the home furnishing retail industry rebounded and was valued at RM39.77 billion. The industry further recovered in 2022 as the high vaccination rate throughout the country coupled with the relaxation of SOPs encouraged Malaysia shoppers to revert back to their normal shopping behaviour and patterns. The industry was valued at RM46.93 billion in 2022.

Going forward, factors boosting the growth within the home furnishing retail industry is likely to come from COVID-19 boosting consumer interest in spending more on dwellings. Even before the pandemic, there had already been an existing trend of increasing expenditure on home furnishings. Expenditure on furnishings, household equipment and routine household maintenance had increased from RM137 per month in 2014 to RM200 per month in 2019. Furthermore, the rise in smart home furnishings, and a gradual recovery in the local property market mainly supported by the Malaysian Government’s push for affordable housing had also created impetus for growth for the industry. At the same time, the growing population and growing affluence of Malaysians resulting from urbanisation of the country is also expected to serve as a driving force behind the growth of the local home furnishing retail industry. On the flipside, negative sentiments arising from a possible flare up in COVID-19 cases is expected to affect demand for home furnishing as consumers shun enclosed and crowded places. Furthermore, the high oil prices environment which has led to higher cost of living will likely affect the purchasing power of Malaysians, which may in turn deter purchase of discretionary products such as home furnishing and in particular furniture.

From the supply side, growth of the local home furnishing retail industry is expected to be supported by the Malaysian Government’s efforts to boost the local manufacturing sector. As retail home furnishing is also procured from locally manufactured sources, the government’s support for the manufacturing sector has also benefitted the local home furnishing retail industry. The continuous influx of new shopping malls across the country has also served to support the supply of retail home furnishing to consumers. However, due to the fragmented nature of the industry, new entrants often face challenges when competing with existing players. This may somewhat hinder the supply of newcomers into the home furnishing retail industry in Malaysia.

Overall, the Malaysian home furnishing retail industry is anticipated to continue on its resilient growth trend during the forecast period from 2023 to 2027. While growth in 2023 is expected to be affected by the global economic slowdown arising from interest rate hikes affecting consumer demand for home furnishings, the industry is still expected to register positive growth for the year. In the medium to long-term, a recovery from the expected economic slowdown coupled with higher proliferation of smart technology for home furnishing and better prospects in the local property market is expected to encourage continued growth of the industry. The home furnishing retail industry is projected to grow RM50.25 billion in 2023 to RM73.17 billion in 2027, representing a CAGR of 9.3% during the forecast period.

Source: Protégé Associates

Business strategies and plan for SSF HOME GROUP BERHAD.

Moving forward, the company intends to continue strengthening the market position in the home furnishing industry in Malaysia via a 2-pronged strategy to expand the market presence which is to be implemented within 36 months from the Listing, as detailed below:

1. Strengthening the market presence and brand visibility by establishing new retail outlets
2. Enhancing IT infrastructure
   1. Migration to a new ERP system
   2. Enhancement of e-commerce website
   3. Upgrading SSFHOME mobile application

MQ Trader View

Opportunities

1. The company has a diversified client base of loyal customers. The company actively recruits customers to join its SSFHOME VIP membership loyalty programme on its SSFHOME mobile application as part of the marketing strategy to attract new customers and entice existing customers to make repeative purchases. The members are provided with benefits which include discounts on normal-priced products and invitations to attend events organised by the Group. The company has 82,997 active members who have signed up for its membership program, all of which are paid memberships.
2. The company maintains a large inventory comprising a diverse product mix of furniture, home décor, and home living products. They provide customers with a wide variety of furniture, home décor, and home living products. This extensive product portfolio enables them to better serve their target demographic of the middle to high-end market and attract new customers. The wide product mix, spanning various price points, also allows them to appeal to the mass market and meet their needs. Thanks to this diverse product mix, the company can offer a greater selection of products in one location.

Risk

1. The business is subject to shipping disruptions and fluctuations in freight rates. The company's products are sourced from both local and overseas suppliers, making them reliant on marine transportation for product delivery. In the event of any freight disruption, order replenishment may be prolonged, potentially affecting sales. Additionally, the business is exposed to fluctuations in freight rates. Since freight charges are aggregated with the product prices on invoices from its suppliers (including local and overseas trading houses who, in turn, may source products from their supplier network overseas), any changes in global freight rates are reflected and passed on to the company.

Click here to refer the IPO - SSF Home Group Berhad (Part 1)

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