• Established in 1988, 99 Holdings operates “99 Speedmart” chain of mini-market outlets, which involved in the retailing of daily necessities, comprising product segments like Food & Beverages, Personal & Baby Care, and Household.
   
• Moving forward, we project the revenue to grow at 5.9-7.6% to RM9.8b-RM11.2b for FY24-26f, while the core net profit is expected to increase by 6.1-10.4% to RM442mRM506m, supported by the outlet expansion plans and establishment of new DCs.
   
• We derive a fair value of RM1.70 (an upside of 3.3% against the IPO price of RM1.65) for 99 Holdings. This fair value is derived by pegging a P/E ratio of 30x to the FY25f EPS of 5.68 sen. We believe a P/E ratio of 20x is justified as it is in line with the average P/E ratio of 30.7x of the Consumer Products & Services sector.

Investment Highlights

Continue to expand its outlets… 99 Speed Mart Retail Holdings Berhad (99SMART) has grown from just 100 outlets in 2008 to 2,651 as of the LPD, the group intends to continue its aggressive growth strategy by opening 250 new outlets annually, aiming to reach approximately 3,000 outlets nationwide by end-2025. This expansion is expected boost sales transactions, advertising space, and product capacity.

…and strengthen its logistical capabilities. As of the LPD, 99SMART operates a network of 19 Distribution Centers (DC) across Malaysia supported by 618 delivery trucks. To accommodate its growing number of outlets, the group aims to establish at least 25 new DCs in Selangor, Pahang, Kedah, Sabah, and Sarawak, while replacing its delivery trucks over 15 years old within the next 2-3 years. These efforts will optimize the capacity of each DCs, minimise delivery time, improve order fulfilment, and ensure quicker replenishment of popular items.

International expansion plans. Leveraging its established value chain in Malaysia and the strong brand name of “99 Speedmart”, the group intends to strengthen its sourcing capabilities by tapping into any potential new markets in the Asia Pacific region for competitively priced goods. We believe, having an international supply chain makes the group well-positioned to potentially reduce costs, improving its bottom-line, and create opportunities for establishing an international outlet presence.

Strong track record and growing market share. With nearly 40 years in the industry, 99SMART has built a strong track record, growing its market share from 26.0% to 40.1% between 2018-2023, making it the biggest mini-market retailers in Malaysia. The group also holds 75.6% of chain retailers market share in the country. 9SMART’s “Near n’ Save” gives it a unique advantage over competitors, allowing the group to sell goods at competitive prices, while keeping its stable margins relatively and providing vast geographical coverage. This strategy has helped 99SMART gain a loyal customer base and compete effectively in the market.

Company Background

Through its wholly-owned subsidiaries, 99SMART operates the well-known "99 Speedmart" chain of mini-market outlets, which retail daily necessities primarily in the Food & Beverages, Personal & Baby Care, and Household products segments.

Big payday for the founder. 99SMART public issuance is expected to raise gross proceeds amounting to RM660.0m to the group, whilst the Offer for Sale is expected to raise gross proceeds of up to approximately RM1,696.2m, which will accrue entirely to the Selling Shareholders, Lee Thiam Wah and Ng Lee Tieng.

Substantial growth in other operating income. In addition to operating its chain of stores, 99SMART generates other operating income from product display fees, target incentive fees, and DC fees for handling products as well as other advertising and promotional fees. The group successfully grew its other operating income at a CAGR of 11.6% between FY21-23.

99SMART hold lion’s share in the mini-market segment. The group’s large network of outlets across Malaysia has positioned 99 Holdings ahead of other mini-market and grocery-based retailers in Malaysia, significantly contributing to the group’s strong market share of 40.1% and 11.6%, respectively, by revenue in 2023.

Prospects remain bright. According to the IMR Report, the mini-market retail segment in Malaysia is expected to grow at a CAGR of 5.4% between 2023-2028, driven by the expansion of chain retailers, catering to consumers seeking convenience and accessibility. We believe, the group is well-positioned to capitalise on this growth, especially by expanding its network of outlets.

Financials

In FY23, 99SMART’s revenue surged to RM9.2b from RM7.8b in FY21, achieving a CAGR of 8.4%. The growth was mainly due to an increase in sales transactions driven by a growing number of outlets nationwide and a relatively stable daily average transaction value.

Project to grow at 5.9-7.6%. Moving forward, we project 99SMART’s revenue to grow at 5.9-7.6%, reaching RM9.8b-RM11.2b for FY24-26f, while its core net profit is expected to increase by 6.1-10.4% to RM442.0m-RM506.4m, supported by the ongoing expansions of outlets and the establishment of new DCs.

Source: Mplus Research - 19 Aug 2024