IT WAS third time lucky for 7-Eleven Malaysia Holdings Bhd as it was finally relisted on the local bourse in May, making it the largest initial public offering (IPO) in the retail sector on Bursa Malaysia this year.

The convenience store chain had an offer size of RM731.8 million, with an additional RM102.2 million that could be raised from the over-allotment option.

A total of 530.33 million 7-Eleven shares were offered for the IPO, where 348.94 million units were held by parent Berjaya Retail Bhd and the rest were newly issued shares. The shares for sale made up 43% of 7-Eleven’s enlarged share capital.

While the bearish market conditions of late have pulled 7-Eleven’s share price down to RM1.30 as at last Tuesday, the counter has averaged 23.84% higher at RM1.709 since listing compared with its issue price of RM1.38 — outperforming FBM KLCI’s year-to-date decline of 10.34%.

On its debut on Bursa on May 30, 7-Eleven closed 10.9% higher at RM1.53, and reached a high of RM2 a few weeks later.

Despite its high valuation, the IPO still attracted strong institutional investor demand.

At the retail price of RM1.38, the stock was valued at 51.11 times its financial year ended Dec 31, 2013’s (FY2013) earnings per share of 2.7 sen.

According to 7-Eleven’s joint principal adviser Maybank Investment Bank, the IPO also set a record for having the tightest price range — at between RM1.33 and RM1.38 per share — and the IPO was fixed at the top end. The other joint principal adviser for the listing exercise was Kenanga Investment Bank.

7-Eleven’s IPO attracted 11 local and foreign institutional investors demanding for cornerstone shares, but only eight made it to the list.

The eight took up 305.3 million shares or 50.5% of the total offering, and this included the greenshoe option. The IPO also brought about a broader spectrum of investors globally to diversify 7-Eleven’s investor base.

The cornerstone investors are AIA Co Ltd, Genesis Investment Management LLP, Capital Research and Management Co, Matthews International Capital Management LLC, Albizia Asean Opportunities Fund, York Capital Management Asia (HK) Advisors Ltd, Macquarie Funds Management Hong Kong Ltd and UOB Asset Management (M) Bhd. The latter five are first-time investors in a Malaysian IPO.

Interestingly, this was the first Malaysian IPO where the cornerstone investors were not subject to a lock-up period.

As at end-September, 7-Eleven had 1,677 stores, a net increase of 120 stores after accounting for the closure of 20. Maybank Investment Bank’s Nov 26 research note states that for the full year, management estimates the net opening of 190 stores, taking into account closures of 24 for the year.

“7-Eleven is seeing an improvement in product mix, with growth in key segments such as beverage (+11% year on year in sales), snacks (+9%) and health and wellness (+10%). A positive as well, 7-Eleven has tied up with Telekom Malaysia and Astro for bill payments, and this service will be launched in end-2014. Coupled with the nationwide roll-out of Touch ’n Go, we expect commission revenue to improve from FY2015 onwards,” the note adds.

For the nine months ended Sept 30, 2014, the group’s revenue grew 12.9% to RM1.4 billion compared with the previous year, while net profit was up 34% to RM45.1 million. The improved results were driven by new stores and same stores growth of 4.5%, as well as gross profit margin expansion.

7-Eleven’s net profit grew at a four-year compound annual growth rate of 23.8%, while revenue expanded at a CAGR of 8.4% from 2010 to 2013.

With more than 1,600 stores serving over 900,000 customers per day, 7-Eleven is the largest stand-alone convenience store operator in Malaysia with an 82% market share as at March 2014.

This article first appeared in The Edge Malaysia Weekly, on 22 - 28 December 2014.

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