Privatisation on the cards for 7-Eleven Malaysia?

This article first appeared in The Edge Malaysia Weekly, on January 22, 2018 - January 28, 2018.
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THERE has been talk recently that 7-Eleven Malaysia Holdings Bhd — owner and operator of 7-Eleven stores in the country — is a privatisation target … again. But what is not common knowledge is that this time, it is being targeted by Berjaya Assets Bhd (BAssets), a locally listed diversified group ultimately controlled by Tan Sri Vincent Tan Chee Yioun.

According to sources, BAssets intends to take 7-Eleven Malaysia private, starting off with mopping up “cheap” shares on the open market.

“Something is brewing between 7-Eleven Malaysia and BAssets. A corporate exercise is being contemplated,” a source tells The Edge.

Interestingly, last Tuesday, BAssets surfaced as a substantial shareholder of 7-Eleven Malaysia with a 5.114% stake, after acquiring 5.1 million shares on the open market and via direct deals. It is learnt that BAssets is likely to continue acquiring the shares to raise its stake to double digits.

BAssets is the developer of Berjaya Times Square in Kuala Lumpur, one of the country’s largest retail and commercial projects. The group also owns Natural Avenue Sdn Bhd, which operates lottery numbers forecast outlets in Sarawak. BAssets has also obtained a licence agreement with Greyhound Café Co Ltd for exclusive rights to establish and operate cafés under the Greyhound Café trademark in Malaysia.

It is worth noting that 7-Eleven Malaysia and BAssets have two common major shareholders in Tan and Sultan of Johor Sultan Ibrahim Sultan Iskandar (see shareholding chart).

Including BAssets’ stake in 7-Eleven Malaysia, Tan has total equity interest of 42.463% in the 24-hour convenience store chain operator. The self-made billionaire also controls BAssets with a 59.362% stake. Sultan Ibrahim is the second largest individual shareholder of 7-Eleven Malaysia with a 15.523% direct stake. The entrepreneurial ruler also has a 9.381% direct stake in BAssets.

Tan’s private vehicle, Berjaya Retail Bhd — the single largest shareholder of 7-Eleven Malaysia — has been paring down its stake in the latter, from a 48.62% direct stake as at Jan 9 last year to 31.61% as at last October.

“Berjaya Retail is a friendly party. When the time is right, its stake in 7-Eleven Malaysia will be sold to BAssets, hence, a general offer will be triggered,” says another source.

The latest speculation about 7-Eleven Malaysia’s privatisation should not come as a surprise as the company has been listed, delisted and relisted at least twice in the past two decades.

To recap, 7-Eleven Malaysia first became part of a listed group in 2001, when it was bought over by Berjaya Corp Bhd — Tan’s flagship company — from Antah Holdings Bhd. After a restructuring in 2004, 7-Eleven Malaysia fell into the hands of Tan’s Intan Utilities Bhd, before the latter was delisted three years later.

In June 2010, 7-Eleven Malaysia returned to the market in the form of Berjaya Retail, bundled with consumer durables marketing firm Singer (M) Sdn Bhd. However, just nine months later, in March 2011, Berjaya Corp — blaming Berjaya Retail’s poor share price performance, lack of public interest and trading liquidity — took it private.

7-Eleven Malaysia made a comeback to Bursa Malaysia in 2014, at an initial public offering price of RM1.38 per share, valuing the company at RM1.7 billion.

 

Stagnant market cap

Unfortunately, 7-Eleven Malaysia’s market capitalisation today remains at RM1.7 billion, which represents almost 40 times its trailing 12-month (TTM) profit. In other words, the company has not grown its market cap since its listing.

At an investors’ briefing last year, BAssets executive director Koh Huey Min had commented that 7-Eleven Malaysia was still undervalued.

“The market size and number of stores of industry peers in Thailand, China and Taiwan are more than double the size of that in Malaysia,” she reportedly said. “There is a lot of upside for 7-Eleven as Tan Sri Vincent sees it. Being the entrepreneur he is, he has always had that foresight and it has been proven many times.”

Last year, Tan was ranked 20th on Forbes Malaysia’s 50 richest list with an estimated net worth of US$820 million.

According to 7-Eleven Inc’s website, there are 17,799 stores in Japan, 8,469 in Thailand, 5,022 in Taiwan, and 477 in Singapore.

The 7-Eleven chain in Japan is operated by Seven & I Holdings Co Ltd, a Tokyo-based diversified retail group. In Thailand, the iconic convenience stores are operated by CP All PCL, the retail flagship of Thai business magnate Dhanin Chearavanont’s Charoen Pokphand Group.

President Chain Store Corp of Uni-president Group operates 7-Eleven stores in Taiwan while Hong Kong-based Dairy Farm International Holdings Ltd — a member of the British family-owned Asian conglomerate Jardine Matheson Holdings Ltd — operates the chain in Singapore.

Here in Malaysia, 7-Eleven is the country’s largest convenience store chain with more than 2,100 stores nationwide, serving over 900,000 customers daily.

A quick check on Bloomberg shows that Seven & I Holdings is valued at US$36 billion, CP All at US$22 billion, followed by Dairy Farm at US$11 billion and President Chain Store Corp at US$10 billion. In contrast, 7-Eleven Malaysia is valued at US$438 million.

Note that this might not be an apple to apple comparison as some of 7-Eleven Malaysia’s counterparts in the region are also involved in other businesses. However, on a price-earnings basis, 7-Eleven Malaysia is trading at a TTM price-earnings ratio (PER) of 39 times, the same as CP All.

In comparison, Seven & I Holdings and Dairy Farm are trading at a lower PER of 23 times, and President Chain Store Corp at 28 times.

Tan, the founder and adviser of Berjaya Corp, returned as executive chairman of the conglomerate last November after having retired in 2012, citing his wish to focus on philanthropic work.

It will be interesting to see how Tan consolidates his assets under Berjaya Group to realign its businesses for the next phase of growth.

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