Berjaya Retail sets 50% dividend payout policy

Berjaya Retail (BRetail) burst onto the IPO scene yesterday, announcing a possible dividend distribution of up to half of net profit, coupled with an aggressive five-year growth plan.

“For ordinary shareholders, we have a dividend policy of up to 50%, depending on what is decided by the board of directors. For the irredeemable convertible preference share (ICPS), there is a fixed dividend,” said Ng Su Onn, executive director of 7-Eleven Malaysia Sdn Bhd, after the launch of its prospectus here yesterday.

The flotation of BRetail will list both the 7-Eleven convenience stores and Singer (Malaysia) Sdn Bhd branches under a single entity on the Main Market of Bursa Malaysia Securities.

7-Eleven has a chain of 1,127 convenience stores nationwide while the Singer Group consists of more than 560 branches involved in the marketing and selling of consumer durables.

The company’s growth plan is largely dependent on retail expansion. 7-Eleven, in particular, has been expanding at the rate of 21% per annum over the past 10 years.

“We will open a minimum of 100 new convenience outlets this year, but will strive for 150 new shops. Investors can also expect this trend of expansion going forward. Our target is 2,000 7-Eleven outlets in five years,” Ng told reporters.

Yeap Dein Wah, managing director of Singer, aims to open over 400 new Singer outlets over the next five years, bringing the total number of outlets to over 1,000.

With an average capital cost of RM250,000 for each new 7-Eleven store and RM150,000 for each Singer branch, this brings BRetail’s total asset base to at least RM1.1 billion (without depreciation) by 2015, up from RM814.5 million as at Dec 31, 2009.

Management added that the proceeds from the IPO would be used for working capital, and the expansion would be internally funded. For FY09, BRetail registered a net profit of RM34.5 million on the back of revenue of RM1.5 billion.

7-Eleven is expected to account for 77% of BRetail’s revenue and 53% of pre-tax profit, whilst Singer would contribute 23% of BRetail’s revenue and 47% of pre-tax profit.

BRetail is expected to raise proceeds of between RM38.44 million and RM53.44 million from the IPO, depending on the number of shares taken up.

Two million shares will be available for application by the Malaysian public, while a further five million units will be made available for the Bumiputera public.

Another three million shares will be made available for minority shareholders of Berjaya Corporation Bhd. Each share will be offered at 50 sen.

Application for the subscription of BRetail’s securities is open now and will close at 5pm on July 22, 2010.

Despite the grand expansion plans, investors may still be sceptical.

Based on the prospectus, BRetail’s net tangible asset (NTA) per share stands at two sen, after taking into account merger deficit of RM690 million. Without accounting for the merger deficit, the NTA per share would be 52 sen, similar to the offer price of 50 sen.

Additionally, the price-to-earnings ratio (PER) for BRetail is on the high side. Based on results for FY09, BRetail would be trading at a trailing PER of 22 times, whereas its peers AEON and Amway are currently trading at a trailing PER of 13 and 14 times.

On another note, Tan Sri Vincent Tan, chairman of Berjaya Corporation Bhd, told reporters that going forward, Berjaya Foods Bhd (BFoods) may also include Papa John’s Restaurants.

BFoods presently consists of Kenny Rogers’ Roasters, a mid-casual dining restaurant. An IPO application for BFoods was submitted to the Securities Commission on June 4, 2010.

“BFoods is a small exercise. We hope to use this later to create a larger group. We need to expand to create value for the shareholders of Berjaya Corp. Eventually, we may be looking at going regional or international,” he said.

Other food chains or stores associated with or owned by the Berjaya Corporation include Starbucks Coffee and Krispy Kreme Doughnuts. BFoods is expected to be listed around the end of this year.


This article appeared in The Edge Financial Daily, July 1, 2010.