KUALA LUMPUR (Aug 28): Much has been said about the business model of 99 Speed Mart Retail Holdings Bhd (KL:99SMART), whose Sept 9 listing on the Main Market of Bursa Malaysia would value the leading mini-market player at RM13.86 billion, or RM1.65 per share. 

Ahead of the largest initial public offering (IPO) in Malaysia in years, 99 Speed Mart has targeted a 50% dividend payout ratio from its profit after tax — supported by its strong cash generation capabilities, and recession-proof business dealing with daily necessities.  

99 Speed Mart also has great growth plans; it aims to reach 3,000 outlets by the end of 2025, a net addition of 349 stores, or 13.2% more from its current 2,651 outlets. Selective international expansion and bulk sales operations are also on the cards.

Analysts expect the company to reach a RM10 billion turnover by the end of this year (based on a blended average forecast), from RM9.21 billion in the financial year ended Dec 31, 2023 (FY2023). Net profit is expected to grow 20% to RM480.9 million in FY2024, and another 11% to RM533.9 million in FY2025. 

Looking past 99 Speed Mart’s headline numbers, The Edge assessed the mini market group’s proposition from the perspectives of both growth and yield.

The Edge calculated the forward estimated dividend yield, based on forward dividend amounts the company could pay using a 50% payout assumption from its estimated net profits, which are derived from a blended average of analysts’ forecasts.

The calculations showed that based on analysts’ earnings forecasts and the company’s listing market capitalisation of RM13.86 billion, the forward dividend yield is 1.9%, which is lower than some of its peers.

For instance, according to Bloomberg, Nestle (Malaysia) Bhd’s (KL:NESTLE) forward dividend yield is 2.9% as at Aug 27, while Mr DIY Group (M) Bhd (KL:MRDIY) had a yield of 2.2%. Among the smaller market cap peers, those with higher forward dividend yield include Padini Holdings Bhd (KL:PADINI) (3.5%), and Aeon Co (M) Bhd (KL:AEON) (3.3%).

Compared with other sectors, the Bursa Malaysia REIT Index on average pays a dividend yield of 5.8%, while the Bursa Malaysia Financial Services Index pays about 4.8% based on Bloomberg data.

One market observer commented that based on the high valuation the book runner has priced for this IPO, there seems to be little meat left on the table for other investors.

If 99 Speed Mart’s share price went up further due to market enthusiasm on its outlook, say by 20%, the stock’s indicative dividend yield at that time would drop from 1.9% to 1.5%.

Nevertheless, one analyst told The Edge that investors could approach the stock as a blue-chip growth stock, where 10% growth would be deemed satisfactory. This compares with the compound annual growth rate (CAGR) of 15.5% in analysts’ consensus net profit forecast from FY2023 to FY2025.

Operationally, 99 Speed Mart takes generally less than two weeks to convert cash spent on inventories back into cash from selling its products, a rate that is superior to some of its listed peers who would take two months, or even up to five months for a few others.

The analyst cited huge stock liquidity and low volatility in business earnings as some practical factors to consider. “Beauty lies in the eyes of the beholder,” he added.