99 Speed Mart up 12% on debut following Malaysia's largest IPO in ...

KUALA LUMPUR (Sept 9): Shares of 99 Speed Mart Retail Holdings Bhd (KL:99SMART) opened at RM1.85, 12.1% higher or a 20 sen premium to its initial public offering (IPO) price of RM1.65, on its debut on the Main Market of Bursa Malaysia on Monday.

At the time of writing, the counter traded even higher at RM1.91, up 26 sen or 15.76%, valuing the mini market group at RM16.04 billion, based on its issued capital of 8.4 billion shares.

The IPO of 99 Speed Mart, Malaysia's largest in seven years, raised a total of RM2.36 billion, including RM1.7 billion from an offer for sale of 1.028 billion shares by founder and chief executive officer Lee Thiam Wah and his wife Ng Lee Tieng.

The public issue of 400 million new shares raised up to RM660 million. The group has set aside 59% of that amount to expand its network of outlets, 15% to set up new distribution centres, 8.3% to buy delivery trucks, and 7.2% to upgrade existing outlets.

The IPO was oversubscribed by 3.04 times.

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.

Hong Leong Investment Bank (HLIB) has assigned a fair value of RM1.98, followed by Inter-Pacific Research with a fair value of RM1.75, to 99 Speed Mart on the back of its market leader position, coupled with aggressive store expansion.

The fair values imply a 30 times price-earnings ratio of the retailer's earnings for the financial year ending Dec 31, 2025 (FY2025).

HLIB in a note on Monday expects 99 Speed Mart to record an FY2023 to FY2026 revenue compound annual growth rate (CAGR) of 13.1%, and a net profit CAGR of 15.8%.

"This projected growth will be driven by: i) the opening of 250 retail outlets annually; and ii) stable same-store sales growth of 2% per annum," it added.

The house noted that 99 Speed Mart is committed to a 50% dividend payout policy, supported by robust free cash flow generation and a healthy balance sheet with a net cash position.

Nevertheless, based on its IPO price, its dividend yield is relatively unattractive at 1.8%, said HLIB.

Meanwhile, Inter-Pacific in a note last Friday said Mr DIY Group (M) Bhd (KL:MRDIY) is its closest peer that is engaged in retail business operations and convenience stores respectively, as there is no other listed company specifically operating in the mini-market segment. 

"Our valuation is benchmarked to Mr DIY, and we deem the target PER of 30 times to be fair, after taking into consideration its slightly smaller market capitalisation and lower targeted return on equity among its peers," the house added.