99 Speed Mart Retail executive Director and CEO Lee Thiam Wah (fifth from left) and alternate director Albert Lee (far right) with other members of the board of directors at the company's debut on the Main Market
KUALA LUMPUR: 99 Speed Mart Retail Holdings Bhd, Malaysia’s largest mini-market chain, is set to expand into the “underpenetrated” East Coast and Northern regions of the country.
Despite its extensive network of over 2,650 stores nationwide, the group has no outlets in Kelantan but plans to establish a presence there “quite soon.”
Yesterday, 99 Speed Mart debuted on the Main Market with a 13.94% premium, closing at RM1.88, up 23 sen from its IPO price of RM1.65 per share.
That will put the company’s market capitalisation at RM15.8bil. It was the most active stock with 422 million shares changing hands.
Following the listing of 99 Speed Mart, founder Lee Thiam Wah’s fortune has risen to US$3.3bil based on the IPO price of RM1.65 per share, according to the Bloomberg Billionaires Index.
Alternate director Albert Lee Yan Zhong, the son of Thiam Wah who is also executive director and chief executive officer, highlighted the company’s strategy to grow by adding 250 new stores annually while focusing on its new bulk sales eCommerce platform, introduced in December 2023 for the Klang Valley.“We have opened (99 bulk sales) for the Southern region just two months ago, on July 1. We are looking at how the market is reacting to it and we will work accordingly. But, we are positive,” Yan Zhong told a press conference in conjunction with its listing debut yesterday.
Although there will be no concentrated expansion in specific states, he said the group has identified key regions which are significantly underpenetrated.
“We are not forgetting that there are still growth opportunities in the central and Southern regions, as well as in Sabah and Sarawak,” he added.
99 Speed Mart is gradually expanding its distribution centres to support future growth.
“It’s how we slowly move up in terms of our distribution centres.
“We are setting a foothold in Terengganu, so hopefully we will expand into Kelantan quite soon,” he noted.
The nearest distribution centre to the East Coast are located in Pahang and Perak.
The group operates 19 distribution centres and plans to add one in Sarawak by year-end, and another in Selangor by the end of 2025.
99 Speed Mart plans to operate a minimum of 25 distribution centres by the end of 2027.
“We aim to be a well-running business first. The most important thing is to continue delivering products to our customers,” he noted.
“With more eyes on us and investors holding our shares, we need to balance the interests of all stakeholders.”
On the mini-market retail sector, independent market researcher Frost and Sullivan projected a compound annual growth rate of 5.4% from 2023 to 2028.
“We aim to exceed that,” said Yan Zhong.
When asked about the possibility of achieving a growth rate double the industry average, Albert highlighted the group’s plan to add around 250 new outlets annually, translating to roughly a 10% increase in store count each year.
Regarding the company’s venture into bulk sales, Albert was tight-lipped about its margins, noting that it’s quite early to comment.
“It is only fair that we take a longer term view of how bulk sales is performing. Only then we can cast a judgement on its margins,” he noted.
As its bulk sales business shares the same logistics backbone as its outlets, Albert emphasised that the group’s focus is now to ensure that infrastructure or DCs has to be in place.
“We need to make sure that that backbone is established first before we cast any decision on how we should expand from there,” he noted.
Regarding potential expansion into other countries or regions, Albert did not rule out any possibilities.
“We don’t have any set plans, but we hold an opportunistic look for other opportunities across South-East Asia,” he noted.
When asked about white-label products, Albert said it is not part of the current strategy.
To note, white-label products are made by one company but sold by retailers with their own branding and logo.
“We are primarily focusing on working closely with suppliers to ensure their products are displayed prominently and sold in volume. Quality remains a key focus that we continue to emphasise,” he noted.
The group’s gearing ratio stands close to zero, owing to term loans totaling about RM50mil.
However, as of June 30, 2024, 99 Speed Mart held net cash of RM85.46mil, which does not include the RM660mil in IPO proceeds.
With those, the company would effectively be in a net cash position, leading to a negative net gearing ratio.
“In terms of the gearing ratio, we know that we are in a net cash position. But it’s not a question of capitalising (the zero gearing) at the moment. The focus is on how we use the funds raised during the listing exercise to make ourselves more resilient and turn into a more robust business out of our existing operations,” Albert explained.
As of July 15, 2024, 99 Speed Mart operates a total of 2,651 stores across Malaysia.
The distribution is as follows: Selangor with 789 stores, Johor with 387, Perak with 300, Sabah with 242, Kuala Lumpur/Putrajaya with 222, Negeri Sembilan with 166, Kedah with 161, Melaka with 135, Penang with 122, Pahang with 112, Terengganu with 7, Sarawak with 5, Perlis with 3, and none in Kelantan.
Meanwhile, analysts are mostly positive on the stock.
UOB Kay Hian (UOBKH) Research, which initiated coverage on 99 Speed Mart, highlighted the company’s leadership in the mini-market segment with a vast network of 2,651 stores.
It said this puts the group well ahead of competitors like Econsave, Bila-bila Mart, and Giant Mini, which operate only 79, 55, and 39 stores, respectively.
UOBKH Research has a “buy” rating on the stock with a target price of RM2.00 per share, based on a 30 times price-to-earnings (PE) estimate for 2025.
The research firm expects a 16.2% annual earnings growth over the next three years, supported by robust demand and a highly profitable business model.
Similarly, Hong Leong Investment Bank (HLIB) Research forecasts a 15.8% net profit growth from FY23 to FY26.
This growth is attributed to the opening of 250 new stores annually and a stable 2% increase in same-store sales.
HLIB Research also has a “buy” rating with a target price of RM1.98, using a 30 times PE for FY25 earnings.
“While this PE implies a 40% premium to 99 Speed Mart’s peers, we believe this is warranted on the back of its market leader position coupled with aggressive store expansion,” it noted.
