This article first appeared in Capital, The Edge Malaysia Weekly on September 9, 2024 - September 15, 2024

COME Monday, Sept 9, Bursa Malaysia will see the listing of 99 Speed Mart Retail Holdings Bhd (KL:99SMART) on the Main Market. The initial public offering (IPO) is the largest on the local bourse in seven years.

Priced at a finalised RM1.65 a share, the IPO exercise entails the public issuance of 400 million new shares as well as an offer for sale of 1.03 billion existing shares, with 1.22 billion shares allocated to institutional investors and the remaining 210 million shares for retail investors.

The IPO, which closed on Aug 23, values the group at RM13.86 billion.

The listing exercise raised a total of RM2.36 billion, of which RM1.7 billion is attributed to an offer for sale of 1.03 billion shares by its founder and CEO Lee Thiam Wah and his wife Ng Lee Tieng.

The issue of 400 million new shares raised up to RM660 million for 99 Speed Mart. The company has earmarked nearly 59% of the proceeds for the expansion of its network of outlets, 15% for setting up new distribution centres, 8.3% for the purchase of delivery trucks and 7.2% for upgrading existing outlets.

Prior to the listing exercise, 99 Speed Mart declared a total dividend payout of RM1.176 billion for the financial years ended Dec 31, 2021 (FY2021), 2022, 2023, and up to March 31, 2024 (1QFY2024), compared with an aggregate net profit of RM1.279 billion registered during the period. Lee and Ng would have made roughly RM2.876 billion upon completion of the IPO.

According to its prospectus, 99 Speed Mart has targeted a payout ratio of about 50% of its profit after tax for each financial year.

Last Monday, the company announced a 66.3% year-on-year jump in net profit to RM125.53 million for 2QFY2024, from RM75.49 million in the same period last year. In a bourse filing, it attributed the growth in profitability to higher sales from its expanded number of outlets and higher other operating income.

Nearly half of its profit from operations of RM476.94 million in 2QFY2024 comprised other operating income, which is mostly made up of fees for product displays, incentives, distribution centre (DC), and advertising and promotions.

Its other operating income grew 23.5% to RM237.4 million, primarily due to an upward adjustment of the DC fee rate charged on suppliers for the handling of products starting from the first quarter.

Revenue for 2QFY2024 rose 8.2% to RM2.42 billion from RM2.24 billion in 2QFY2023, following positive contribution from 59 new outlets during the quarter, which brought the group’s total outlet count to 2,646 as at June 30.

In a Sept 3 note, Inter-Pacific Research ascribed a fair value of RM1.75 to the counter, based on a target price-earnings ratio (PER) of 30 times to its CY2025F earnings per share of 5.8 sen.

“MR DIY Group (M) Bhd (KL:MRDIY) is its closest peer that is engaged in retail business operations and convenience stores as there is no other listed company specifically operating in the minimarket segment. Our valuation is benchmarked to MR DIY’s and [we deem] 99 Speed Mart’s target PER of 30 times to be fair, after taking into consideration its slightly smaller market capitalisation and lower targeted return on equity [compared] to that of its peer Mr DIY,” said the research house, which highlighted 99 Speed Mart’s labour-intensive operations and the price competitiveness of its offerings as key risks for the business.

The company was founded in 1987 by Lee as a traditional sundry shop named Pasar Hiap Hoe. It has since expanded into a retail chain with 2,651 outlets nationwide.

99 Speedmart’s market capitalisation of RM13.86 billion is already higher than that of Johor Plantations Group Bhd (KL:JPG), which listed on the Main Board in July with a market cap of RM2.1 billion based on its IPO price of 84 sen.

99 Speed Mart’s IPO attracted 14 cornerstone investors, which include fund managers AHAM Asset Management Bhd and Areca Capital, insurers AIA and Great Eastern Life Assurance, as well as state investment companies the Employees Provident Fund and Social Security Organisation.

As a part of the group’s institutional offering, 99 Speed Mart entered into a master cornerstone placement agreement with the selling shareholders Lee and his wife, Ng, sole bookrunner CIMB Investment Bank Bhd and the cornerstone investors on July 26.

The cornerstone investors have agreed to take up 786 million shares of the institutional offering, equivalent to more than half of the shares offered for sale.

Upon completion of the IPO, Lee and Ng will hold an 80.4% stake in 99 Speed Mart. This means only 17% will be in the public’s hands, including the 14 cornerstone investors with their 9.35% equity interest.

The retailer has sought a minimum public shareholding spread of 15%. It is worth noting that a moratorium has been imposed on the shares held by Lee and his wife.

CIMB Investment Bank is the IPO’s principal adviser, sole bookrunner, sole managing underwriter and joint underwriter. Affin Hwang Investment Bank and RHB Investment Bank are joint underwriters.

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