KUALA LUMPUR (Aug 20): Mercury Securities has assigned a fair value of RM1.99 to Main Market-bound 99 Speed Mart Retail Holdings Bhd, which is a 21% premium to its initial public offering price of RM1.65, recognising its position as the leading grocery retailer in Malaysia.

With over 2,651 outlets nationwide, 99 Speed Mart, which operates the 99Speedmart chain, dominates the mini-market industry with a 40.1% market share and holds an 11.6% market share in the overall grocery retail sector based on 2023 revenue.

"Despite already having a substantial revenue base, the company still achieved an impressive three-year revenue CAGR (compound annual growth rate) of 10.4% from FY2020-2023", outpacing competitors and expanding its market share, said Mercury Securities in a note on Tuesday.

This robust growth, it added, is primarily attributed to aggressive store expansion and a positive trend in same-store sales growth.

Consumers increasingly prefer small-format stores for convenience, further boosting 99 Speed Mart's performance, noted the research firm.

From FY2019-2023, 99 Speed Mart opened an average of 247 new outlets annually, focusing on under-penetrated regions such as Northern and East Coast Peninsular Malaysia, as well as East Malaysia.

Management indicated the potential to expand to up to 5,000 outlets nationwide, highlighting significant growth potential before market saturation. The company plans to maintain this aggressive expansion pace in FY2025-FY2027, targeting 250 new outlets annually.

To support this expansion, 99 Speed Mart will also build new distribution centres (DCs), aiming to increase from 19 DCs currently to 25 by 2027. These new DCs will bolster the company’s supply chain infrastructure, ensuring efficient distribution to its growing number of outlets.

Mercury Securities said 99 Speed Mart's business model benefits from a self-reinforcing moat, combining convenience and competitive pricing.

"Its strategy of offering low prices while achieving high sales volumes enables the company to negotiate better terms and benefits from suppliers," it added. These advantages, such as product display fees, target incentives, and DC fees, help 99 Speed Mart maintain low pricing, enhance profitability, and fund further expansion.

The cycle of opening more outlets, leading to higher sales, further solidifies 99 Speed Mart’s position as Malaysia’s leading grocery retailer, according to the research firm.

However, the company faces several risk factors, including supply chain disruptions, dependency on maintaining competitive pricing, and potential delays in operations due to IT infrastructure issues.

It noted that 99 Speed Mart’s aggressive expansion, combined with its strong business model and strategic pricing, has allowed it to dominate the grocery retail market in Malaysia.