August 15th – $99SMART (5326.MY)$ is set to launch an initial public offering (IPO), with the subscription period running from August 15th to August 23rd. The IPO is priced at RM1.65 per share, according to the official prospectus. The listing is scheduled for September 9th.

This IPO involves the issuance of up to 1,428 million ordinary shares, which includes an offer for sale of up to 1,028 million existing shares, referred to as 'Offer Shares'. Additionally, there is a public issue of 400 million new shares, known as 'Issue Shares'. Out of these shares, the company plans an institutional offering of up to 1,218 million shares to selected Malaysian investors at a price determined by bookbuilding, and a retail offering of 210 million shares to the company's directors, employees, contributors, and the public at a specified retail price.

Corporate Profile

The company is principally an investment holding company with four wholly-owned subsidiaries. Through two of these subsidiaries, it operates the well-known "99 Speedmart" chain of mini-market outlets involved in the retailing of Fast-Moving Consumer Goods (FMCG) across Malaysia. The remaining two wholly-owned subsidiaries, namely Yiwu J-Jade Trading and Yiwu SM Import and Export, were recently incorporated in China  for the purposes of investment holding and procuring merchandise for sale in their outlets, respectively. According to the IMR Report, the company is the largest mini-market player and a leading grocery retailer in Malaysia, holding a market share of 37.9% and 11.1% in 2022, respectively, based on the Group's revenue for the FYE 2022.

Their outlets serve approximately 940,000 customers per day based on the number of sales transactions recorded in the FYE 2022, with an average sales transaction value per outlet per day of RM23.59. Their growth strategy revolves around implementing their expansion plan. From the FYE 2020 to FYE 2022, they opened an average of 230 new outlets per year (net of closures). As of the Last Practical Date (LPD), they operate 2,542 outlets across Malaysia. The Group maintains a rapid expansion trajectory, aiming to open approximately 250 outlets annually, with an immediate objective to reach a total of about 3,000 operating outlets nationwide by the end of 2025.

The map referenced illustrates the geographical distribution of their outlets and Distribution Centers (DCs) as of the LPD, categorized by state：

Financial Overview

The company's financial performance has consistently improved, with revenue rising from RM7.84 billion in FYE 2021 to RM9.21 billion in FYE 2023. This equates to a compound annual growth rate (CAGR) of approximately 8.41% over the three-year period. Gross Profit (GP) has also seen a notable increase, climbing from RM756 million to RM841.45 million, representing a CAGR of about 5.50%, indicating a robust expansion in profitability.

Profit Before Tax (PBT) has remained relatively stable, slightly declining from RM561.82 million in FYE 2021 to RM538.21 million in FYE 2023. Similarly, Profit After Tax (PAT) attributable to the owners of the Company has experienced a slight decrease from RM419.09 million to RM400.23 million.

For the financial period end (FPE) 2024, the company's financial performance continues to reflect its solid financial progress and growth. Revenue for this period is at RM2.42 billion, with Gross Profit (GP) at RM239.24 million. Profit Before Tax (PBT) is RM178.47 million, and Profit After Tax (PAT) is RM133.15 million.

According to the data in the Prospectus, SSSG has shown a steady increase from 3.7% in FYE 2021 to 6.2% in FPE 2023, indicating a consistent growth in sales for existing stores. This is a positive sign for the long-term development of the business as it demonstrates the company's ability to achieve growth through improving individual store efficiency and optimizing operations rather than solely relying on opening new stores to increase sales.

Industry Overview

The grocery-based retail industry in Malaysia has experienced expansion, as evidenced by the rise in sales value from RM69.3 billion in 2018 to RM72.7 billion in 2022, at a CAGR of 1.2%. Notably, there has been a substantial growth rate of 19.2% in 2022 compared to the previous year.

Moving forward, the grocery-based retail industry in Malaysia is projected to continue growing from 2022 to 2027. This growth will be driven by population growth and a resilient economic outlook, which lead to higher income and expenditure by households. These are key factors supporting the growth of the grocery-based retail industry. However, the grocery-based retail industry may face challenges due to inflationary pressures, which can lead to consumers becoming more price sensitive.

In 2022, grocery-based retailers held a significant share of the total store-based retail sales in Malaysia, accounting for 30.3%. Within the grocery-based retail sector, mini-markets have emerged as a rapidly expanding industry segment in terms of market share, larger than other grocery segments, capturing a growing market share of 29.3% in 2022, compared to 23.7% in 2018.

The growth of the mini-markets industry is also expected to be driven by the expansion of chain retailers which are contributing to the modernisation of the grocery purchasing experience. Modern grocery stores provide consumers a comfortable shopping experience.

Utilisation of proceeds

Based on the IPO Price of RM1.65, the total gross proceeds of RM660.0 million from the  public issue will be used by the company in the following manner:

1. Outlet and DC expenditure: The company intends to allocate approximately RM591.6 million, which represents 89.6% of its budget, to expand the outlet network, upgrade equipment in existing outlets, and invest in enhancing logistics capabilities. These investments aim to sustain and improve efficiency in supporting their expanding network and product range.

2. Repayment of existing bank borrowings: As of the LPD, the Group's existing bank borrowings totaled approximately RM51.5 million. The company intends to use RM45 million, which is about 6.8% of the total gross proceeds from their Public Issue, to repay 14 term loan facilities with Alliance Bank Berhad, CIMB Bank Berhad, Hong Leong Bank Berhad, and RHB Bank Berhad.

3. Establishment of a COE for software solutions: The company estimate that approximately RM23.4 million, which is about 3.6% of the total gross proceeds, will be utilized for their listing expenses.

Click here to start the subscription process>>