• MYR0.33 FV based on 10x FY25F P/E. At MYR0.25/share, Supreme Consolidated Resources is set to raise MYR17.5m (430m shares) from its IPO, mainly to fund its working capital and expand its warehouse facility to support a broader range of frozen and chilled products. Future earnings (3-year CAGR: 22.8%) should be fuelled by market share gains from the continued network expansion and new product introduction, along with margin improvements from cost tailwinds. The IPO price implies a 7.6x FY25F P/E.

• Widespread distribution network. SCRB’s robust distribution network serves over 3.4k customers and offers a diverse range of 1.5k stock keeping units (SKUs), including 79 local and international third-party brands alongside its own. It holds exclusive distributorships in Sarawak for reputable brands like Ramly and Farm’s Best, ensuring strong market reach and enhanced brand visibility. Through its indirect distribution model, which involves wholesalers, agents, and stockists, the company aims to leverage on its partners' established networks to penetrate new markets, reaching a wide array of retail outlets and food service operators, including food service and hotel industries (HORECA), supermarkets, and specialty grocery stores.

• New product launches. Supreme plans to secure new agency rights and expand its product range to meet shifting consumer demand by leveraging on its deep understanding of local preferences. The company aims to introduce frozen and chilled meat products from South America and Thailand, which should diversify its offerings, broaden its customer base, and drive revenue growth and market share gains. With the aforementioned plans and distribution network in place, we project a 3-year topline CAGR of 16.3%, reaching MYR314.2m by FY26F.

• Demand-fuelled expansion. To strengthen its distribution capabilities and improve cost efficiency, SCRB plans to expand its network in Sarawak (Sibu and Bintulu) and Sabah (Kota Kinabalu), thereby reducing its reliance on thirdparty distributors while gaining greater control over logistics and product flow. Additionally, the company has allocated 62.9% (or MYR11m) of the IPO proceeds to construct a 2-acre warehousing and cold storage facility in Sarawak, which will add 1,500 (+58%) pallet spaces. This expansion will reduce reliance on costly rented space and support the planned expansion in frozen and chilled product segment.

• Forecast and valuation. We project a 3-year earnings CAGR of 22.8% driven by its expansion plans to boost topline growth, margin expansion from economies of scale, expectations of a softer USD, and improved operational efficiency from increased warehousing capacity. We derive a FV of MYR0.33, based on an ascribed P/E of 10x on FY25F earnings. The valuation is largely in line with the Bursa Malaysia Small Cap Index as there are no direct local or international peers available for comparison. Key risks include fluctuation in input cost and delay in expansion plans.

Source: RHB Securities Research - 15 Nov 2024