SDS earnings seen stable in FY27 amid cost pressures

PETALING JAYA: SDS Group Bhd’s overall earnings are expected to remain broadly stable for the financial year 2027 (FY27) amid cautious consumer spending, says TA Research.

This stability is supported by efficiency gains from improved distribution route productivity and prudent cost management, which are likely to be partially offset by higher financing costs associated with the group’s Tebrau land acquisition in Johor.

Following a recent meeting with SDS management, TA Research said in a note to clients that the bakery and confectionery group observed continued cautious consumer spending.

It added that the retail segment recording a slight moderation in average basket size from its previously guided level of RM20 per receipt.

Nevertheless, the wholesale segment remains stable, supported by gradually improving product return rates and the expansion of its longer-shelf-life product portfolio.

In particular, SDS’s London Swiss Roll, which has a shelf life of up to 12 months compared with five to 15 days for conventional bakery products, should help reduce wastage and improve distribution flexibility.

The commercial production of London Swiss Roll commenced in July 2026, although revenue contributions remain insignificant at this nascent stage, the research house added.

At optimal utilisation, management estimates that the brand could generate annual revenue of RM15mil to RM20mil, based on existing production capacity and single-shift operations.

To sustain sales momentum, TA Research said SDS is focusing on affordable promotional lunch and dinner sets, targeted outlet renovations and rebranding initiatives to drive footfall and spending.

The group’s management noted that the renovated outlets typically achieve double-digit sales growth upon reopening, supporting SDS’s ongoing refurbishment strategies.

Meanwhile, the group’s input costs remain broadly stable year-on-year, except for plastic packaging, with recent price adjustments expected to partially cushion cost pressures.

TA Research has lowered SDS’s FY27 to FY29 earnings forecasts by 1.3% to 7%, reflecting softer retail spending growth in FY27 and higher finance expenses arising from increased borrowings over the forecast period. .

It maintained a “buy” call on the stock with a lower revised target price of 60 sen from 62 sen previously.