SDS: Profitability Moderates on Retail Slowdown; ‘Outperform’ Rating Affirmed Despite Revised Target Price
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.83 (+14.9%) |
| Last Traded | RM0.72 |
| Recommendation |
SDS Group Berhad recorded a core net profit of RM7.32 million for the second quarter of fiscal year 2026 (2QFY26), marking a 24.9% year-on-year decline. The cumulative first half (1HFY26) core net profit came in below both Public Investment Bank’s and consensus expectations, representing only 41% of full-year estimates. This shortfall was primarily attributed to weaker retail footfall, which typically yields higher margins for the company.
Performance Review
Quarterly revenue for 2QFY26 declined by 4.9% year-on-year to RM86.5 million. This was largely driven by lower contributions from the retail segment, which saw an 8.0% year-on-year decrease in revenue. The wholesale segment also experienced a 2.8% year-on-year fall in sales volume. The lower topline contribution against a largely fixed operating cost base led to a 2.3 percentage point year-on-year compression in net profit margins. However, on a quarter-on-quarter basis, core net profit showed a 4.1% increase, indicating a modest recovery from the previous quarter’s market conditions, bolstered by improved sales from mid-autumn festive products. The company also declared a first interim dividend of 0.50 sen during the quarter, down from 0.6 sen in 2QFY25.
Future Outlook and Strategy
Looking ahead, Public Investment Bank anticipates that SDS Group’s earnings will remain resilient despite subdued consumer sentiment amid ongoing macroeconomic uncertainties. This resilience is expected to be supported by prudent cost management and seasonal year-end spending, particularly in 3QFY26. Margin prospects are also projected to improve, driven by the strengthening of the ringgit and lower key raw material prices for commodities like wheat and sugar. The group plans to continue expanding its presence across both wholesale and retail segments, while maintaining a disciplined approach to cost management to ensure margin sustainability. The investment bank has revised its FY26F-28F earnings forecasts downward by an average of 11% to account for lower retail sales assumptions.
Recommendation
Public Investment Bank maintains its “Outperform” call on SDS Group Berhad, albeit with a revised lower target price of RM0.83 (from the previous RM0.88), based on a 12x CY26F EPS. The current share price of RM0.72 suggests an expected return of +14.9%.
