In-Depth Analysis of Leading Companies: 99 Speedmart Retail Holding Performance
Broker: UOB Kay Hian
Date: Monday, 11 November 2024
99 Speedmart Retail Holding: Delivering Despite Challenges
Recommendation: BUY (Maintained)
Share Price: RM2.32
Target Price: RM2.60
Upside: 12.1%
Bloomberg Ticker: 99SMART MK
Company Overview
Homegrown 99 Speedmart, the largest mini-market player and leading grocery retailer in Malaysia, continues to make significant strides in the retail sector. The chain not only offers groceries but is also involved in the retailing of daily necessities, making it an essential service provider in the Malaysian market.
Stock Data
With a market capitalization of RM19,404.0 million (US\$4,404.0 million) and an average daily turnover of US\$16.9 million over the past three months, 99 Speedmart is a significant player in the Consumer Discretionary sector. The company has 8,400 million shares issued, with a substantial portion (83.0%) held by Lee Thiam Wah and family.
Performance Analysis
In the third quarter of 2024, 99 Speedmart (99SM) delivered strong earnings despite a slip in gross margins due to a timing mismatch in its inventory count. The company’s revenue for 3Q24 was RM2,550.2 million, reflecting a quarter-on-quarter growth of 5.4% and a year-on-year growth of 8.8%. This growth was primarily driven by an enlarged store count, with Same-Store Sales Growth (SSSG) appearing largely flattish.
Financial Highlights
For the nine months ending in 2024, 99SM reported a revenue of RM7,394.0 million, up by 8.7% year-on-year. The company’s Gross Profit (GP) for 3Q24 was RM219.7 million, with an EBITDA of RM219.1 million. The Profit Before Tax (PBT) and Profit for the quarter stood at RM145.2 million and RM107.3 million, respectively. Core Profit was RM126.1 million, which was within expectations at 75% and 76% of the full-year forecasts by analysts and consensus, respectively.
Margin Analysis
Despite a 0.6 percentage point year-on-year and 1.1 percentage point quarter-on-quarter slip in gross margins to 8.6%, the company’s core profit margin increased by 0.2 percentage points to 4.9%. This improvement was attributed to adjusted operating expenses growing at a rate slightly below the increased store count, thereby buffering gross margins.
Key Financial Metrics
- Net Turnover (2024F): RM10,325 million
- EBITDA (2024F): RM24 million
- Operating Profit (2024F): RM272 million
- Net Profit (2024F): RM512 million
- EPS (2024F): 6.1 sen
- PE Ratio (2024F): 38.1x
- Dividend Yield (2024F): 2.0%
Store Expansion and Market Position
99 Speedmart’s store count is on track to achieve its IPO target of 3,000 stores by 2025. As of now, the company has rolled out a net store count of 177 stores, bringing the total to 2,697. The robust quarter-on-quarter strength was partially aided by EPF Account 3 withdrawals, with a 3.4% growth in store count and a 1.9% increase in revenue per store.
Environmental, Social, and Governance (ESG) Initiatives
Environmental
- Energy Efficiency: Installing solar panels at 15 out of its 17 distribution centers.
- Waste Management: Promoting a zero plastic bag policy through the “Say No to Plastic Bags” campaign, recycling 21,500 tonnes of packaging waste in 2023.
Social
- Community Contribution: Prioritizing employment of locals, employing over 21,000 Malaysians (95% of the workforce).
- Diversity and Inclusion: Approximately 49.7% of the workforce are female.
Governance
- Transparency and Accountability: Adhering to the Malaysian Code on Corporate Governance principles.
- Board Independence: Meeting recommendations for at least 30% female directors and a majority of independent directors.
Valuation and Recommendation
Maintaining a BUY recommendation with a higher target price of RM2.60 (up from RM2.00), UOB Kay Hian bases this on a 38.9x 2025F PE, aligning with the +1SD to Mr. DIY’s historical PE mean. With 99SM’s resilient underlying demand, visibility of store expansion, and potential inclusion into the FBMKLCI Index, the stock presents an attractive investment opportunity.
Conclusion
99 Speedmart Retail Holding continues to show robust growth and resilience in the retail market. With a strategic focus on store expansion, efficient inventory management, and strong ESG initiatives, the company is well-positioned to sustain its market leadership and deliver value to shareholders.
Investors are advised to consider the comprehensive analysis and the company’s promising outlook while making investment decisions.
