TA Research forecast the group’s net profit to grow by 11.4% in FY24, 10.6% in FY25 and 11.5% in FY26.
PETALING JAYA: 99 Speed Mart Retail Holdings Bhd deserves a “premium” valuation, says TA Research, considering its consistent revenue growth, operational efficiency and strategic expansion.
In a non-rated note, TA Research assigned a fair value of RM1.71 per share for the Main Market-bound 99 Speed Mart.
It is, however, only six sen or 3.6% higher than the initial public offering (IPO) price of RM1.65. At RM1.71, it also represents a forward price-to-earnings (PE) ratio of 29 times.“We believe that the PE of 29 times, representing a 10% premium over the weighted average PE of selected stocks in the Bursa Malaysia Consumer Products Index, is justifiable due to the group’s dominant position in the Malaysian retail sector, evidenced by its extensive network of over 2,500 outlets and strong brand recognition,” it said.
As of 2023, 99 Speed Mart holds a market share of 40.1% and 11.6% in the mini-market industry and grocery-based retailer industry, respectively. Going forward, the prospects of the grocery-based retail industry is expected to remain positive, underpinned by the expansion in the potential customer base as population increases.
Besides that, demand is expected to remain constant, driven by the characteristics of the products which are essential household necessities and non-discretionary consumables, which result in regular replenishment and replacement.
TA Research expects 99 Speed Mart’s sales growth for the financial years of 2024 to 2026 (FY24 to FY26) to be between 4.7% and 7.6%. It forecast the group’s net profit to grow by 11.4% in FY24, 10.6% in FY25 and 11.5% in FY26.
“Overall, our FY24 to FY26 projections are based on the following key assumptions, namely, the grocery-based retail industry is expected to grow at a five-year compound annual growth rate of 5.7% from 2024 to 2028.
“Profit after tax margin is likely to improve gradually to 4.6%, 4.9%, 5% in FY24, FY25 and FY26, respectively due to the cost optimisation strategies.
“Also, total number of 2,788/3,000/3,246 outlets in FY24,FY25 and FY26 compared with 2,542 outlets in FY23,” it said.
Post-IPO, the group will retain its net cash position, pointed out the research house.
“99 Speed Mart targets to distribute approximately 50% of its PAT annually.
“Assuming a dividend payout ratio of 50% for FY24 to FY26, we project a forward dividend yield of 1.6% to 2%,” it added.
