99 Speed Mart’s business model is one of volume and scale. As Lee once said in an interview, “If you don’t have scale, you can’t compete with Chinese medicine halls on pricing, and you can’t compete with hypermarkets in terms of range.” And where 99 Speed Mart cannot undercut on price, it sells products in smaller sizes.
This week, Bursa Malaysia welcomes the much-heralded initial public offering (IPO) of 99 Speed Mart Retail Holdings, billed as the largest listing (in terms of total monies raised) since that of Lotte Chemical Titan in 2017. A total of 1.428 billion shares were sold to the public (retail and institutions) — 400 million new shares issued at RM1.65 (50 cents) each, raising RM660 million for the company, and 1.028 billion of existing shares offered for sale by the company’s founders Lee Thiam Wah and his wife (raising proceeds totalling RM1.7 billion). The two major shareholders will retain a 79.7% stake in the company post-listing, assuming no additional sale in over-allotment shares (if the options are fully exercised, their shareholding will drop to 77.2%).
At the IPO price, 99 Speed Mart’s market capitalisation would be RM13.86 billion, making it the 36th-largest company on Bursa (based on prices at the point of writing). It is quite likely that its market cap will be even higher upon listing. To be sure, the stock is not cheap by most yardsticks — the IPO is already fairly valued at a trailing price-earnings ratio (PER) of 29.1 times. But we think the stock will trade at premium valuations (relative to the broader market and in line with the largest consumer companies on the local bourse) for its relatively defensive business, strong balance sheet (net cash post-IPO), brand name and market positioning, as well as growth prospects. The company can grow at least 7% to 10% annually for the next three years. Consensus estimates a compound annual net profit growth of 13% on average for 2024 to 2025.
