This article first appeared in The Edge Malaysia Weekly on August 22, 2022 - August 28, 2022

AFTER returning to the black in the financial year ended Dec 31, 2021 (FY2021), and now led by new substantial shareholders following a significant paring of the stake held by tycoon Robert Kuok, shipping firm Malaysian Bulk Carriers Bhd (Maybulk) plans to diversify its revenue stream by venturing into the grocery retail business under a proposed related-party transaction.

Given that there is no synergy with its core business of providing freight services for charter, the proposal has caught many by surprise, prompting the question of whether Maybulk’s cash is being efficiently used for its future expansion.

Maybulk did not respond to The Edge’s queries on the new venture.

In FY2021, the company achieved a net cash position of RM67.1 million, partly due to the disposal of three vessels, which resulted in a gain of RM98 million. Its cash position expanded to RM90.2 million as at end-March 2022.

In the initial stage of the grocery foray, the group is planning to spend RM54.38 million to open 15 TMG Mart-branded supermarkets and 15 TMG Express-branded convenience stores within the next 12 months. It will be done through a collaboration with Tunas Manja Sdn Bhd.

The new business is anticipated to contribute 25% or more to Maybulk’s net assets and/or net profit going forward, and as such, it needs to obtain non-interested shareholders’ approval at an extraordinary general meeting to be held later. Sierac Corporate Advisers Sdn Bhd has been appointed as the independent adviser for the deal.

The diversification — which aims to mitigate the risk of overdependence on its existing shipping business — is deemed as a related-party transaction as Tunas Manja is controlled by two other new substantial shareholders of Maybulk, namely Datuk Chin Yoke Kan and Datuk Chin Yoke Choon.

Yoke Kan and Yoke Choon bought a 16% stake in Maybulk via Tunas Capital Sdn Bhd from Kuok’s Pacific Carriers Ltd, which ceased to be substantial shareholder of Maybulk in April. Subsequently, the duo were appointed directors of Maybulk.

But the key figure behind the grocery deal is Datuk Goh Cheng Huat, who acquired a 16% stake in Maybulk from Pacific Carriers as well. Also a new substantial shareholder, he is executive director of Maybulk.

A steel magnate, Goh is the founder of Bursa Malaysia-listed steel firms Leader Steel Holdings Bhd and Eonmetall Group Bhd. Currently, he is the former’s deputy chairman/executive director, and the latter’s executive director.

“Goh has gained experience in launching and growing new businesses. With that, he is expected to provide invaluable strategic advice and insight when leading the group’s venture into the grocery business,” Maybulk said in a filing with the stock exchange.

To obtain shareholder approval for the diversification, Maybulk will have to convince its major non-interested shareholders including PPB Group Bhd (14%) and Pacific Carriers (2.46%).

An analyst points out that the grocery retail segment is very competitive with the mushrooming of many other marts and convenience stores in the market.

“It depends on the locations Maybulk is going to open. In the Klang Valley, it has to compete with many big names. Even in the rural areas, there are also brands like TF ­Value-Mart,” she tells The Edge.

She believes Maybulk’s grocery business will target the mid- to low-income groups, which may capture better sales. In addition, if the outlets are set up in the rural areas, competition will be less intense.

The estimated average cost per store for TMG Mart and TMG Express is RM1.65 million and RM825,000, respectively.

Using TMG Express for an apple-to-apple comparison, the estimated average cost per store for FamilyMart (announced in 2016) was RM330,000, and RM500,000 for MyNews and CU (announced in 2021).

Maybulk quoted research and consulting firm Smith Zander’s report as saying that the grocery retail market is forecast to grow 8.21% to RM246.67 billion in 2022 from RM227.95 billion in 2021, fuelled by population growth, increasing disposable income, the affluence of the population and rising popularity of the modern retail format.

Maybulk’s partner Tunas Manja operates 85 supermarkets and grocery stores under the TMG brand, mainly in the east coast of Peninsular Malaysia. Pahang has the most stores (more than 50), followed by Terengganu, the Klang Valley, Kelantan, Johor and Negeri Sembilan.

But Maybulk is targeting different locations in the country. Under the collaboration agreement, it has the exclusive right to open new outlets in Kuala Lumpur, Selangor, Putrajaya, Negeri Sembilan and Melaka. Beyond these areas, it will be subject to identification and mutual agreement between the parties on a case-to-case basis.

The collaboration will see Maybulk leveraging on Tunas Manja’s capabilities and large network of suppliers in areas such as the establishment of outlets, renovation works, licensing and permits, point-of-sale system, access to management systems, staff training, marketing, advertising and promotion.

As a result, apart from paying a one-time initial set up and renovation fee for each outlet, Maybulk is also required to pay a support services fee amounting to 1.25% of total grocery revenue on a monthly basis.

A CTOS search shows that Tunas Manja only made a net profit of RM2.23 million for the year ended March 31, 2021, but it was a substantial 255.52% jump from RM626,054 a year ago.

In sharp contrast, TF Value-Mart Sdn Bhd — which has over 40 outlets in Kedah, Penang, Perak, Kuala Lumpur, Selangor, Pahang, Kelantan, Negeri Sembilan and Johor — raked in a much higher net profit of RM69.3 million for the year ended Dec 31, 2021, 22.03% higher than the RM56.79 million made in the previous year.

Shares of Maybulk have slipped 20% year to date to close at 42.5 sen last Friday, valuing it at RM420 million.

On the back of surging freight rates, the group, which owns and operates four vessels, posted a net profit of RM195.24 million in FY2021 versus a net loss of RM20.78 million in FY2020.

However, management has warned of fluctuations in ship charter rates and the need to embark on a business diversification plan. For 1QFY2022, its net earnings tumbled 43.75% to RM8.44 million from RM15.01 million in the same quarter a year ago, dragged down by lower hire days from a smaller fleet size.

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