This article first appeared in The Edge Malaysia Weekly on July 15, 2024 - July 21, 2024

ZUSPRESSO (M) Sdn Bhd — the operator of homegrown coffeehouse chain ZUS Coffee — is close to securing about RM250 million in private equity (PE) funding, led by Singapore-based PE firm KV Asia Capital Pte Ltd. It is also weighing at least two pitches for a billion-ringgit initial public offering (IPO) on Bursa Malaysia, say market sources.

Of the amount to be raised, it is understood that RM50 million is fresh capital from the issuance of new shares to bolster its balance sheet as well as support its expansion plans and operational needs. The remaining 80%, or RM200 million raised from the PE funds, is for existing shares, enabling owners to partially cash in on their stake in the Selangor-based company, which sold 35% equity interest to Janica Lao, daughter of Filipino billionaire Frank Lao, in March 2023.

“ZUS Coffee is en route to going public, but this may not happen in the near future as it will be securing PE funding soon. I believe it will push for a listing, as an IPO seems to be the most viable exit path for these PE investors, although we can’t discount the possibility of a trade sale too,” a source from the PE industry tells The Edge, referring to the possibility of Zuspresso selling a portion of its business rather than the whole group.

KV Asia Capital, which will be leading the syndicated PE funding round, is identifying a few other investors, including a government-linked investment company (GLIC), to come together to collectively invest in ZUS Coffee, the source adds.

ZUS Coffee declined to comment when contacted, while KV Asia Capital had yet to respond to enquiries at press time.

It is worth noting that KV Asia Capital had in 2017 acquired a 25.7% stake in dietary supplement direct seller DXN Holdings Bhd (KL:DXN), which was relisted on the Main Market of Bursa Malaysia in May last year. Post-listing, the PE firm still owns a 13.31% stake in DXN.

KV Asia Capital is led by its two co-founders — executive chairman Karam Butalia and partner Vibhav Panandiker — both of whom had a stint at Standard Chartered Private Equity. According to its website, KV Asia Capital, which has 11 companies under its portfolio, is focused on “making significant equity investments in quality mid-sized companies across Southeast Asia”.

The PE firm has also invested in Wildflour Hospitality Group, a premium casual restaurant operator in the Philippines; Bee Logistics, an integrated logistics company in Vietnam; and PT Victoria Care Indonesia Tbk, a beauty and personal care manufacturer and distributor in the archipelago.

Meanwhile, KV Asia Capital has exited seven investments, including hypermarket chain TF Value-Mart Sdn Bhd, private education group Asia Pacific Education Holdings Sdn Bhd and Singapore-based nursing home operator Orange Valley Healthcare.

Asked about the timing for a ZUS Coffee IPO, sources from the financial industry let on that the coffee chain could go public sooner than anticipated if Zuspresso’s financial figures are strong.

“ZUS Coffee is mulling an IPO … Market chatter suggests that Zuspresso is eyeing a valuation of RM1 billion to RM1.5 billion. However, this figure is not yet finalised, given the company’s ongoing rapid expansion,” a source tells The Edge, noting that Maybank Investment Bank Bhd and CIMB Investment Bank Bhd are “already pitching to become the principal advisers for the potential listing exercise”.

While Zuspresso has not set a definitive timeline to publicly float its shares, the decision might indeed hinge on the strength of its latest year-end earnings.

A check on a CTOS report reveals that Zuspresso generated an audited profit after tax of RM10.15 million on revenue of RM204.12 million in its financial year ended June 30, 2023 (FY2023). The accounts were audited by KPMG.

From “over 200 outlets” in FY2023, it is estimated that the number of ZUS Coffee outlets have surged to over 470. Thus, Zuspresso’s upcoming FY2024 results should provide a clearer picture of its profitability and whether the touted valuation of RM1 billion to RM1.5 billion or more is justifiable.

“A strong audited account could expedite the process for an IPO, though a Main Market listing on Bursa Malaysia could take at least 12 months from now.

“ZUS Coffee’s June FY2024 results are expected to be impressive given that it is one of the biggest beneficiaries amid the ongoing boycott of Starbucks. Its results should be available by August or September. By then, we should have a better idea of how profitable it really is,” another source points out.

Zuspresso, headquartered in Glenmarie, Shah Alam, Selangor, opened its first ZUS Coffee outlet at Binjai 8 Premium SoHo in Kuala Lumpur at the end of 2019. To date, it has delivered over 39 million cups, according to information on its website.

The shareholding structure of Zuspresso looks fragmented. Besides co-founder Ian Chua Seng Yee, who owns a 21.27% stake, the company has another 15 shareholders. They include chief operating officer Venon Tian Jerng Hui (0.49%), head barista Terence Ho You Gio (0.72%) and angel investor Tan Swee Yeong (10.87%).

Notably, The Concierge Sdn Bhd — controlled by Janica — is Zuspresso’s single largest shareholder with a 35.48% stake. The chief operating officer of the Choi Food Garden Group, Janica is known as a restaurant heiress as she oversees the rapid expansion of Frank’s empire, which includes Gloria Maris and Choi Garden.

When it was announced in March last year that the Lao family was acquiring the 35% stake in Zuspresso at an undisclosed amount, Janica reportedly said the Choi Garden group intends to grow further in the Philippines and that ZUS Coffee is a natural fit for its expansion plans.

“We aim to introduce ZUS Coffee to the Philippines. ZUS Coffee is not looking at franchising; all their stores are owned by the company, and they aim to be the local champions.

“ZUS Coffee’s growth in Malaysia has been very quick in the last three years and they are incredibly determined in serving the local Malaysian market with localised flavours. We believe that they will do the same thing in the Philippines market,” Janica said in a statement.

Interestingly, the Malaysian coffeehouse scene appears to be buzzing as investors seek out potential beneficiaries and weigh the odds of an easing of the ongoing boycott of US coffee franchise Starbucks since late last year over purported links to Israel.

US-listed Chinese coffeehouse chain Luckin Coffee Inc is poised to make its debut in Malaysia, and it will be roping in a Bursa Malaysia-listed firm as its local partner to embark on an ambitious store expansion plan over the next five years, The Edge reported on June 20.

It entry adds to the many coffeehouse chains jostling to win the business of those looking for alternatives to the 53-year-old world’s largest coffeehouse chain amid tensions in the Middle East. The ongoing boycotts have partly dragged Starbucks Malaysia franchise holder Berjaya Food Bhd (KL:BJFOOD) into the red for two straight quarters. BFood reported a net loss of RM29.76 million for the third quarter ended March 31, 2024 (3QFY2024) following a net loss of RM42.6 million in the second quarter ended Dec 31, 2023 (2QFY2024), despite having issued public statements on policy neutrality.

Palaterium Sdn Bhd, which owns a 70% stake in the Malaysian franchised operation of Taiwanese HWC Coffee, is also expanding. Having set up its first outlet in 1 Utama Shopping Centre in April 2022, the company reportedly said last March that it plans to invest RM60 million to set up 85 stores by December. It had 18 stores at the time. It plans to expand into the East Coast market with its first branded store at East Coast Mall in Pahang in November.

Even as the guessing game continues on the timing of a ZUS IPO, at least one alternative coffee-related IPO prospectus has been filed. 

Oriental Kopi Holdings Bhd, which operates a café chain and sells packaged food, filed for an IPO on the ACE Market in June to raise funds to double its number of outlets in Malaysia over the coming two years, as well as set up a new central kitchen plus speciality retail stores selling its branded consumer packaged food. According to the draft prospectus on Bursa Malaysia’s website, Alliance Islamic Bank Bhd is the principal adviser, sponsor, sole underwriter and placement agent for the planned IPO, seeking to sell 418.1 million new shares or 20.9% of the enlarged issue share base to the public and via private placements at a price to be determined. 

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