KUALA LUMPUR (July 5): TA Securities Research has valued Main-Market bound MST Golf Bhd at RM1.20 a share — a 48.15% premium to its initial public offering (IPO) price of 81 sen a share — on the back of the group's strong profit growth, coupled with its business plan to widen coverage in existing markets and penetrate regional countries amid robust demand for golf clubs and other equipment.

MST Golf, which is slated to be listed on July 20, is primarily involved in specialty retail and wholesale of golf equipment which comprises golf clubs, golf apparels, and other accessories in Malaysia and Singapore.

“We value the group at RM1.20/share premised on PER 22x FY2024F EPS of 5.4 sen, in line with the local specialty store peer MR DIY.

“We believe this is fairly justified by the stock’s strong earnings growth of 26.7%/31.8% (which outperform its peer’s consensus earnings growth of 21.5%/16.4%) in FY2023/FY2024 and dividend payout of 30%, albeit the stock has relatively smaller market capitalisation,” said the research house in a note on Wednesday (July 5).

According to TA Securities, MST Golf saw a return on equity (ROE) of 40% in FY2022 versus MR DIY's ROE of 36.6%. 

Citing a report by the independent market research Vital Factor Consulting, the research house said the import value of golf equipment in Malaysia grew at a compound annual growth rate (CAGR) of 32.4% to RM132.1 million in 2022, while Singapore’s import value of golf equipment grew by 33.8% last year.

“Both region’s import growth was mainly attributed by the increase in golf demand, as golf is one of the singular based sports (where participants compete as individuals) played outdoors during the Covid-19 pandemic, coupled with increased in interest arising from growing popularity of the sport as a result of shifting paradigm in leisure activity behaviour,” it said.

From FY2019 to FY2022, MST Golf’s revenue grew steadily by a three-year CAGR of 19.6% to RM300.9 million while net profit  similarly grew 41.8% to RM29.1 million, mainly driven by the growing number of golf retail outlets, introduction of the ilovegolf membership programme, and  strengthening of the US dollar, which led to higher selling prices.

In line with the topline expansion, the group’s net profit margin also increased from 5.3% in FY2019 to 8.9% in FY2022, thanks to better cost efficiency after the deployment of digitalisation progress.

TA Securities forecast the group’s revenue and net profit to grow to RM386.6 million and RM36.9 million in FY2023, while revenue and net profit for FY2024 is estimated at RM471.3 million and RM48.6 million.

“For FY2025, we expect the group to record higher net earnings of RM60.8 million with a steady profit after tax margin of 10%,” said TA Securities.

MST Golf’s IPO comprises a public issuance of 160 million new shares and an offer for sale of up to 68 million existing shares. At 81 sen a share, it is expected to raise RM184.68 million, of which RM129.6 million is from the issuance of new shares.

RHB Investment Bank Bhd is the principal adviser, sole underwriter, and sole placement agent for its IPO.