This article first appeared in The Edge Malaysia Weekly on April 22, 2024 - April 28, 2024

THE interest generated by the initial public offering (IPO) of 99 Speed Mart Retail Holdings Bhd could be a gauge of investor reaction and sentiment to the recent boycott of a close competitor, and whether such action adds to the risks of running retail outlets.

Among the recently reported boycotts of retail outlets, one hinged on religious sensitivities while others were due to ownership linked to Western entities that were allegedly supporters of Israel in its ongoing conflict with Palestine. One of the affected businesses — 99 Speed Mart’s competitor KK Mart — came under fire after the sale of socks bearing the word “Allah” which, in turn, resulted in the founder and a director of the retail mart being charged with hurting or offending religious feelings while the directors of the suppliers of the socks were charged with abetment.

In addition to the directors being charged, KK Mart was snubbed by certain groups, which poses an increase in the risks for operators of retail businesses.

Nevertheless, stockbroking and corporate advisory outfit M & A Equity Holdings Bhd’s managing director Datuk Bill Tan Choon Peow says he does not expect any impact from these boycotts.

“The impact of the boycotts is minimal, I don’t see any long-term impact, I don’t see any additional risks [for the operators of such convenience stores or mini-marts],” he adds.

Ang Kok Heng, chief investment officer of Phillip Capital in Kuala Lumpur concurs with Tan.

“I don’t think 99 Speed Mart will be affected by such sentiment … if anything, 99 Speed Mart may benefit because the boycott was aimed at KK Mart, and 99 Speed Mart is usually located close to KK Mart, so it could be better for them [99 Speed Mart],” he says.

While there has been speculation of 99 Speed Mart’s IPO being under pressure, that remains conjecture at press time. The grocery chain operator did not respond to questions from The Edge.

To recap, 99 Speed Mart had in March this year filed a draft prospectus with the Securities Commission Malaysia. The IPO involves its founder Lee Thiam Wah and his family letting go of 17% equity interest and proposing a minimum public shareholding spread of 15% versus the Bursa Malaysia requirement of 25%.

In a nutshell, 99 Speed Mart is looking to sell 1.428 billion shares, comprising an offer for sale of up to 1.028 billion existing shares and a public issue of 400 million new shares, but it did not disclose any information related to valuations However, it said the proceeds from the IPO will be allocated to expand the number of its outlets, from 2,025 now to 3,000 by 2025, establish new distribution centres, purchase delivery trucks and upgrade existing outlets.

The group reported a net profit of RM293.69 million for its nine-month period ended September 2023, which was up 48% from RM198.85 million in the previous corresponding period, while revenue grew 15% to RM6.8 billion from RM5.91 billion.

While Phillip Capital’s Ang does not see 99 Speed Mart facing any issues, he does, however, highlight Berjaya Food Bhd’s (BFood) sharp drop in sales, which was substantial,” he says.

In its second quarter ended Dec 31, 2023 (2QFY2024), BFood suffered a net loss of RM42.58 million from RM182.55 million in sales, in contrast to a net profit of RM35.49 million on revenue of RM295.32 million a year ago.

In its notes accompanying its results, BFood says “the key factors that affect the performance of the group’s businesses include mainly the festive seasons, tourism, eating-out culture, raw material costs, staff costs and consumer perception,” with “consumer perception” being the operative words.

The brands under BFood include Starbucks, Kenny Rogers Roasters, Paris Baguette Bakery Café and Ser Vegano, which operates Latin-inspired, Tex-Mex plant-based vegan restaurants in Malaysia, among others.

Tan says in the case of the F&B outlets that allegedly faced boycotts, such as those under BFood, KFC, Pizza Hut and McDonald’s, there could be increased competition from cheaper alternatives as new restaurants with better pricing have sprouted up.

State-controlled Johor Corp (JCorp), in its FY2020 annual report had indicated that it was looking to float the shares of QSR Brands (M) Holdings Bhd, which runs fast-food outlets KFC and Pizza Hut in Malaysia, and KFC outlets in Singapore, Cambodia and Brunei, in 2023.

While there is market talk that this IPO was scrapped, JCorp, in an email response to The Edge, says, “As a dynamic venture builder and agile portfolio manager, JCorp implements a spectrum of strategies to create value and ensure sustainable returns on investments.

“In the case of QSR Brands, an IPO, alongside other capital raising and corporate exercises are considered by the company as part of its strategy to maximise shareholder returns.

“JCorp is unable to provide specific details of QSR Brands at this juncture. QSR Brands’ board of directors will review and assess its options before deciding in due course. QSR Brands will share details at the appropriate juncture.”

JCorp is the largest shareholder of QSR Brands with a 56% stake.

In April last year, private equity firm CVC Capital Partners was said to be considering selling its 21% stake in QSR Brands after several attempts at an IPO since 2017 failed. CVC’s 21% stake, news reports said, was worth RM1.2 billion.

With the recent boycott, how much CVC’s stake is worth and how badly QSR Brands’ business has been impacted is anyone’s guess.

The remaining 23% equity interest in QSR Brands is held by retirement fund the Employees Provident Fund (EPF).

QSR Brands and its unit KFC Holdings (M) Bhd were taken private in February 2013 by JCorp, the EPF and CVC in a RM5.2 billion deal.
 

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