KUALA LUMPUR (July 18): MST Golf Group Bhd will be the first golf equipment retail chain operator to list on Bursa Malaysia when it makes its debut on the Main Market on Thursday (July 20). Its initial public offering (IPO) is expected to raise RM129.6 million from the public issuance of new shares, while its proceeds will mainly be used for local and regional expansion.

MST Golf is estimated to have a market capitalisation of RM664.9 million upon listing, based on an enlarged share capital of 820.87 million shares at an offer price of 81 sen per share. This values the company at 27 times of its price-earnings ratio (PER) — based on its earnings per share of three sen in the financial year ended Dec 31, 2022 (FY2022).

In an interview with The Edge, MST Golf chief executive officer Ng Yap said the valuation is justified given the group’s strong brand within the golf community.

“A lot of funds are very interested in us because we are a well-known business-to-consumer company with an established brand name and management system. The response from institutional investors has been overwhelming so far. In fact, based on our IPO price of 81 sen, the portion earmarked for institutional offering has been oversubscribed,” he revealed.

Founded in 1989, MST Golf is today the leading golf specialty retailer and service provider and a well-known brand among the golf industry and consumers, with a total of 44 retail locations in Malaysia and Singapore.

“We are confident of growing our retail footprint — locally and regionally — and our IPO is to primarily enable us to fast track our regional expansion into key consumer markets within Southeast Asia. To this end, we expect to be able to show good progress to our shareholders within a year from our group’s listing and this would reflect positively on our financial results,” Ng added.

Notably, MST Golf is the market leader in the sales of golf equipment in Malaysia, commanding a 51% local market share of imported golf equipment. However, the group is not resting on its laurels, as Ng said it is eyeing a slice of pie in other regional markets, namely Indonesia, Thailand and Vietnam, to fuel its growth in the retail golf equipment segment.

Ng is the controlling shareholder in MST Golf, holding a 12.95% direct interest and an indirect interest of 64.76% via All Sportz Sdn Bhd. Post-IPO, his shareholdings in the company are expected to be diluted to 59.25%, comprising a direct interest of 7.11% and an indirect interest of 52.14%.

Ng said the group was already looking into regional expansion before the Covid-19 pandemic and had prepared to proceed with the plan without going for listing.

“But later, we realised that the company that we talked to, [the joint venture partner for the expansion plan in Indonesia], wants to go faster, not [at] the pace that we [initially] planned.

“Our Indonesian joint venture partner, PT Sinar Eka Selaras, has an aggressive plan to open the MST Golf brand of golf retail outlets in Indonesia. Hence, we mapped out internally to open 19 outlets in the next three years,” said Ng.

He added that conservatively, the addition of six outlets as proposed in the IPO prospectus represent a base case scenario for MST Golf’s expansion into the Indonesian golf retail market.

“That kind of situation showed us that the funds ready for us [would enable us] to expand at a faster rate. Otherwise, it will take a bit of time [to grow business there]. Hence, the listing is geared more towards regional expansion,” Ng said.  

Sinar Eka Selaras is a subsidiary of PT Erajaya Swasembada Tbk — a public company listed on the Indonesia Stock Exchange — and is engaged in the distribution and trading of electronic devices, including mobile phones. It is also involved in the distribution and retailing of fashion products for brands such as JD Sports.  

With the strong partnership with Erajaya, Ng is hoping MST Golf’s venture in Indonesia will one day grow bigger than its businesses in Malaysia and Singapore. Ng shared that some RM40 million funds will be used for the investment in Indonesia over the next three years, which is to be shared equally between MST Golf and Erajaya.

For MST Golf, Ng said establishing a business in Indonesia with a local retail player with a strong market presence could expedite its expansion plan, as the group could leverage the partner’s know-how in terms of finding the right locations, getting distribution channels and hiring people.  

Speaking on the Malaysian market, Ng said he believes it is still underserved and will grow further through outlet expansions.

“Our [customers’] demographic is more towards men and upper-income people. This is the group of people that [is] least likely to do regular shopping. If we have bigger shops and more outlets closer to them, it increases the chance [of] them [buying] more and our market size can be bigger,” he said.

MST Golf launched its prospectus on June 28. Its IPO involved a public issuance of 160 million new shares and an offer for sale of up to 68 million existing shares. Based on its IPO price of 81 sen, it will raise RM184.68 million from both new shares and the offer for sale of existing shares.

Of its proceeds from the issuance of new shares amounting to RM129.6 million, close to 90% will go towards funding its expansion in Malaysia and Singapore and into new geographical markets. To be more precise, RM62.76 million will be allocated for the expansion in Malaysia and Singapore, while another RM53.55 million for the expansion into new geographical markets.

Meanwhile, RM3 million will be allocated for upgrading of digital technology facilities, RM3.23 million for its working capital, and the remaining RM7.04 million for listing expenses.

According to Ng, golf is a niche market and tends to be played by upper-income people. MST Golf has a loyalty programme called ilovegolf, which has 93,995 active members. The average spending per receipt among members is RM1,300 and according to its IPO prospectus, more than 75% of the group’s retail revenue in 2022 is derived from ilovegolf members.

However, he observed that the outlook for golf continues to be promising as the younger generation is increasingly attracted to playing golf.

He added that golf has become a part of mainstream pop culture, thanks to the various innovative and cross-collaborations among retail brands, as well as celebrities and influencers who started to play golf during the Covid-19 period, as it was one of the earliest sports allowed to be played during the Covid-19 pandemic, while restrictions were imposed on other social and entertainment activities.

“These are all off-course golf players [who started playing golf in indoor golf centres], influenced by these social media influencers. However, with the evolution that the golf industry is undergoing, the entry barrier into golf for newcomers is much lower these days.

“With the growing appeal of golf among people, we continue to invest in MST Golf Arena, by setting up indoor golf centres with F&B [food and beverage] services next to our big format retail stores. Many golfers bring their non-golfer friends to experience golf for the first time through this kind of venue. Hopefully, some of which can go on to become on-course golf players,” Ng said.

MST Golf Arena is an indoor golf centre which merges entertainment, dining and retail. Currently, two indoor golf centres are open at The Gardens Mall and Tropicana Gardens Mall. Its third outlet at Gurney Paragon Mall in Penang is slated to officially open in the third quarter of this year.  

MST Golf recorded a profit after tax of RM29.1 million in FY2022, compared with RM10.2 million for FY2019, representing a three-year compound annual growth rate (CAGR) of 41.8%. Revenue rose to RM300.9 million from RM176 million, with a three-year CAGR of 19.6% during the same period.

The group posted a net profit of RM8.79 million for its first quarter ended March 31, 2023 (1QFY2023) on a revenue of RM86.29 million.