This article first appeared in The Edge Malaysia Weekly on September 2, 2024 - September 8, 2024

FOLLOWING the successful launch of 99 Speed Mart Retail Holdings Bhd’s initial public offering (IPO), competitor KK Supermart & Superstore Sdn Bhd is mulling a flotation exercise as well, sources familiar with the matter tell The Edge.

KK Supermart, commonly known as KK Mart, operates 861 outlets in the country, making it the second largest minimarket chain after 99 Speed Mart. The latter, which is scheduled to list on Sept 9, has 2,651 stores throughout the country.

It is understood that KK Mart, motivated by 99 Speed Mart’s success, has been meeting with banks and other financial institutions to kick-start its flotation exercise. However, the management of KK Mart is said to be keeping its plans as low profile as possible.

“Following the interest generated by 99 Speed Mart’s prospectus launch, KK Mart is revisiting its IPO plan. The exercise will take at least one year, including a request for proposal, finalising the adviser and financial institutions, price realisation and launching the prospectus,” a source familiar with KK Mart says.

KK Mart founder and chairman Datuk Seri Chai Kee Kan (K K Chai) could not be reached for comments as at press time.

Another source points out that with the tapering off of the sock controversy that stoked religious sensitivities and the legal wrangle that followed, the retail group is seeking to revitalise its IPO plan.

“The interest in the IPO was revived after the successful launch of the 99 Speed Mart prospectus, especially the valuations it (99 Speed Mart) secured,” the source adds.

“Nevertheless, the owner of KK Mart is trying to be low profile about the plan due to the recent incident.”

KK Mart first announced its IPO plan in May last year. Chai estimated then that the company would list on Bursa Malaysia in one to three years.

However, the group came under fire in March after socks bearing the word “Allah” were found to be on sale at its outlets. That resulted in the founder and a director of the retail mart chain being charged with hurting or offending the feelings of Muslims, while the directors of the supplier of the socks were charged with abetment.

In addition to the directors being charged, KK Mart was boycotted by many patrons and there was also risk of damage to its stores, which could have affected its earnings.

It was reported that KK Mart shelved its proposed listing plan following the incident.

In mid-July, KK Mart and the supplier Xin Jian Chang Sdn Bhd were each fined RM60,000 by the Shah Alam Sessions Court after pleading guilty to an offence under Section 298 of the Penal Code for wounding religious feelings.

Meanwhile, Chai, his wife Datin Seri Loh Siew Mui, and three directors of Xin Jian Chang were acquitted of intentionally wounding the religious feelings of others, after the prosecution withdrew its case.

The acquittal was granted after deputy public prosecutor Datuk Masri Mohd Daud informed Sessions Court judge Muhamad Anas Mahadzir that the Attorney General’s Chambers had accepted the accused’s representation letters, but was continuing its prosecution of the companies.

A market observer familiar with KK Mart says, “Following a favourable court ruling, KK Mart’s IPO is poised for a revival. The successful listing of 99 Speed Mart has ignited investor interest in the mini-mart industry, prompting a closer look at potential rivals like KK Mart … Now that the (legal) issues are out of the way, it’s back to business as usual at KK Mart, and the IPO is being looked at.”

For its listing exercise, 99 Speed Mart offered 1.43 billion shares at RM1.65 a share. It raised RM2.36 billion, making it the biggest IPO on Bursa in seven years.

At RM1.65 a share, 99 Speed Mart’s market capitalisation is estimated to be at RM13.86 billion at the point of listing, which is just below the market valuation of established companies such as Genting Malaysia Bhd (KL:GENM) and QL Resources Bhd (KL:QL), at RM14.96 billion and RM15.75 billion, respectively.

99 Speed Mart founder Lee Thiam Wah and his wife Ng Lee Tieng are expected to receive a whopping RM1.7 billion from the offer for sale of 1.03 billion existing shares.

Prior to the exercise, 99 Speed Mart declared a total dividend payout of RM1.18 billion for the financial year ended Dec 31, 2021 (FY2021) to 1QFY2024.

Besides the offer for sale, 99 Speed Mart will issue 400 million new shares to raise RM660 million in fresh capital for expansion.

In FY2023, the group posted a 22.5% jump in profit after tax (PAT) to RM400.23 million from RM326.67 million a year earlier, on the back of a 14.1% increase in revenue to RM9.21 billion from RM8.08 billion previously. Back-of-the-envelope calculations indicate that 99 Speed Mart generated a PAT margin of 4.3% and profit before tax (PBT) margin of 5.8%.

Based on its FY2023 net profit of RM400.2 million, or 4.76 sen a share, the company’s shares have a historical price-earnings ratio of 34.7 times.

For KK Mart, a search on the Companies Commission of Malaysia website shows that in the financial year ended June 30, 2023 (FY2023), the company posted a 44.8% jump in PAT to RM98.25 million from RM67.86 million a year earlier. This was on the back of a 36.5% surge in revenue to RM1.26 billion from RM919.65 million previously.

Looking at the numbers, KK Mart generated better margins than 99 Speed Mart in FY2023. Its PAT margin was 7.8% while its PBT margin was 10.4%.

Should KK Mart manage to secure its IPO at a similar valuation as 99 Speed Mart at 34.7 times, it could have a value of RM3.41 billion.

Chai owns 95% of KK Supermart, while the remaining 5% is held by his wife Loh. 

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