This article first appeared in The Edge Malaysia Weekly on April 6, 2020 - April 12, 2020

TF Value-Mart, a hypermarket chain popular in secondary towns in eight states, including Perak, Pahang and Johor, is up for sale. The retailer, backed by private equity firm KV Asia Capital Pte Ltd, hopes to dispose of the entire business for more than RM1 billion, sources say.

It is learnt that TF Value-Mart, which has been looking for a buyer since late last year, was recently approached by potential investors.

Established in 1999, TF Value-Mart Sdn Bhd runs the hypermarkets in towns such as Bentong, Pahang; Tapah and Batu Gajah in Perak; and Muar and Segamat in Johor.

When contacted to confirm talk that TF Value-Mart is seeking buyers, its CEO, Ho Mun Hao, tells The Edge, “We are owned by a private equity (PE) fund and PE firms evaluate their portfolios from time to time. Thus, I will not be able to confirm what you have heard.”

It is noteworthy that the typical investment horizon for PE funds in grocery retail is about five years.

According to a source, KV Asia Capital bought into TF Value-Mart in 2014, which coincides with talk that the fund may be looking at exiting the retailer.

Ho says TF Value-Mart has been profitable and it remains optimistic about the retail landscape and is committed to opening at least three stores per year. Last year, it opened four stores.

“We have 33 stores across Peninsular Malaysia and our 33rd store opened in Balik Pulau, Penang, early this year,” Ho says.

He adds that in the financial year ended Dec 31, 2019, the retailer’s 32 stores raked up sales to the tune of RM1.54 billion. While he is mum on the profit it made, a source tells The Edge that it was about RM50 million.

A search on the Companies Commission of Malaysia’s website reveals that in FY2018, TF Value-Mart recorded RM1.36 billion in sales and a net profit of RM46.76 million. As at Dec 31, 2018, the company had total liabilities of RM284.86 million, of which RM239.89 million was current. It also had accumulated profits of RM48.85 million.

It is understood that it is not just KV Asia Capital’s stake in the retailer that is up for sale but the entire business.

On pricing, a source tells The Edge that the owners’ expectations were very high last year as they were seeking a 12 to 13 times Ebitda of around RM85 million. Since then, it is learnt that they are now looking at a more realistic valuation of 10 times Ebitda.

While one source reckons that the sale process will be tough in the light of Covid-19 and the Movement Control Order (MCO), another points out that because those with money to invest have not many potential businesses to put their money into, they see businesses such as grocery as an attractive option. Furthermore, the grocery business is thriving during the MCO.

TF Value-Mart is wholly owned by Peta Sejahtera Sdn Bhd. Its directors are Ho, Mark Anthony Locsin De Venecia, Lee Teck Hoe @ Anthony Lee, Goh Cheok Weng and Tan Yip Chian. Peta Sejahtera, in turn, is owned by Modern Trade Holdings Pte Ltd (70%) and Savana Mulia Sdn Bhd (30%). Goh owns one share in Peta Sejahtera.

Savana Mulia, meanwhile, is 99.99%-owned by Modern Trade and 0.01% by Tengku Farith Rithauddeen.

KV Asia Capital, headquartered in Singapore, is focused on making significant equity investments in quality mid-sized companies in Southeast Asia. It owns TF Value-Mart via its KV Asia Capital Fund 1. It is understood that it owns about 75% of TF Value-Mart via Hyper 1 International Pte Ltd, which owns a 99.44% stake in Modern Trade.

In Malaysia, KV Asia Capital also has a stake in DXN Holdings Bhd. It had previously invested in APIIT Education Group.

According to TF Value-Mart’s website, the retailer started expanding in 1998 after the Low family of Bentong, which operated a Chinese medical hall-cum-mini market, bought two abandoned cinema buildings — Lyceum and Lido — in Bentong. Lyceum was converted into a warehouse while Lido was turned into Bentong’s first supermarket.

Two years later, the family opened their first hypermarket in Raub. Another hypermarket followed a year later in Jerantut. Subsequently, the business grew and the company’s first store outside Pahang opened in Tanjung Malim, Perak, in 2005.

It is worth noting that Malaysia has two other PE fund-backed grocery retailers that have about the same number of stores as TF Value-Mart. Jaya Grocer is backed by AIGF Fund Co while The Food Purveyor Sdn Bhd — which operates Village Grocer, Ben’s Independent Grocer and Pasaraya OTK — is backed by Navis Capital Partners.

AIGF holds a 45% stake in Trendcell Sdn Bhd, the operator of Jaya Grocer, while Navis owns 74.91% equity interest in The Food Purveyor.

Based on latest available data, Jaya Grocer and Village Grocer, which are located in major cities, posted lower revenues and profits than TF Value-Mart. In the financial year ended Oct 31, 2018, The Food Purveyor registered a net profit of RM7.92 million on the back of RM809.58 million in revenue. Trendcell recorded a net profit of RM27.49 million on revenue of RM933.48 million in its financial year ended June 30, 2019.

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