Main Market-bound MST Golf says its valuation is justified by its established branding, regional expansion plan

KUALA LUMPUR (July 18): MST Golf Group Bhd will become the first golf equipment retail chain operator to list on Bursa Malaysia when it debuts on the Main Market on Thursday (July 20). Its initial public offering (IPO) is expected to raise RM129.6 million from the public issuance of new shares, while the proceeds will be used mainly for local and regional expansion.

MST Golf is estimated to have a market capitalization of RM664.9 million upon listing, based on an enlarged share capital of 820.87 million shares at an offer price of 81 sen per share. It values ​​the company at 27 times its price-earnings ratio (PER) — based on its earnings per share of three sen in the financial year ended December 31, 2022 (FY2022).

In an interview with The endMST Golf chief executive officer Ng Yap said the valuation is reasonable given the group’s strong brand within the golf community.

“Many funds are interested in us because we are a well-known business-to-consumer company with an established brand name and management system. The response from institutional investors has been overwhelming so far. In fact, based on our IPO price of 81 sen, the portion reserved for the institutional offering is oversubscribed,” he revealed.

Established in 1989, MST Golf is today the leading golf specialty retailer and service provider and a well-known brand in the golf industry and consumers, with a total of 44 retail locations in Malaysia and Singapore.

“We are confident of growing our retail footprint — locally and regionally — and our IPO will primarily enable us to fast-track our regional expansion into key consumer markets in Southeast Asia. To this end, we hope to show good progress to our shareholders within a year from the listing of our group and this will reflect positively on our financial results,” added Ng.

MST Golf to accelerate footprint in the Southeast Asian market

Notably, MST Golf is the market leader in golf equipment sales in Malaysia, with a 51% local market share of imported golf equipment. However, the group is not resting on its laurels, as Ng said it is eyeing a slice of the pie in other regional markets, namely Indonesia, Thailand and Vietnam, to fuel its growth in the retail equipment segment. in golf.

Ng is the controlling shareholder in MST Golf, holding a 12.95% direct interest and an indirect interest of 64.76% through All Sportz Sdn Bhd. After the IPO, his shareholdings in the company are expected to be reduced to 59.25%, consisting of a direct interest of 7.11% and an indirect interest of 52.14%.

Ng said the group was already looking at regional expansion before the Covid-19 pandemic and prepared to pursue the plan without listing.

“But later, we realized that the company we talked to, [the joint venture partner for the expansion plan in Indonesia]want to go faster, no [at] our speed [initially] planned.

“Our Indonesian joint venture partner, PT Sinar Eka Selaras, has aggressive plans to open the MST Golf brand of golf retail outlets in Indonesia. Therefore, we have mapped out internally to open 19 outlets in the next three years,” said Ng.

He added that conservatively, the addition of six outlets as proposed in the IPO prospectus represents a base case scenario for MST Golf’s expansion into the Indonesian golf retail market.

“That kind of situation shows us that the funds are ready for us [would enable us] to expand at a faster rate. Otherwise, it will take some time [to grow business there]. So, the list is more focused on regional expansion,” said Ng.

Sinar Eka Selaras is a subsidiary of PT Erajaya Swasembada Tbk — a public company listed on the Indonesia Stock Exchange — and is engaged in the distribution and trading of electronic devices, including mobile phones. It is also involved in the distribution and retailing of fashion products for brands such as JD Sports.

With the strong partnership with Erajaya, Ng hopes that one day MST Golf’s Indonesian venture will grow beyond its businesses in Malaysia and Singapore. Ng shared that about RM40 million of funds will be used for investment in Indonesia over the next three years, which will be split equally between MST Golf and Erajaya.

For MST Golf, Ng said that establishing a business in Indonesia with a local retail player with a strong market presence could accelerate its expansion plan, as the group could use the partner’s knowledge in terms of finding the right locations, getting distribution channels and hiring. people.

Speaking on the Malaysian market, Ng said he believes it is still underserved and will grow further through outlet expansions.

“Our [customers’] the demographic is more men and people with high incomes. This is the group of people who [is] least likely to do regular shopping. If we have bigger stores and more outlets closer to them, it increases the opportunity [of] they [buying] there are more and our market size is bigger,” he said.

MST Golf launched its prospectus on June 28. Its IPO involves a public issuance of 160 million new shares and an offer for sale of up to 68 million existing shares. Based on its IPO price of 81 sen, it will raise RM184.68 million from both the new shares and the offer for sale of existing shares.

Of its proceeds from the issuance of new shares worth RM129.6 million, close to 90% will go towards funding its expansion in Malaysia and Singapore and into new geographical markets. To be more precise, RM62.76 million will be allocated for expansion in Malaysia and Singapore, while another RM53.55 million for expansion into new geographical markets.

Meanwhile, RM3 million will be allocated for upgrading digital technology facilities, RM3.23 million for its working capital, and the remaining RM7.04 million for listing expenses.

Golf appeals to younger generations through mainstream pop culture and fashion

According to Ng, golf is a niche market and is mostly played by people with high incomes. MST Golf has a loyalty program called ilovegolf, which has 93,995 active members. The average spend per receipt among members is RM1,300 and according to its IPO prospectus, more than 75% of the group’s retail revenue by 2022 will come from ilovegolf members.

However, he observed that the outlook for golf continues to be promising as the younger generation is increasingly attracted to the game of golf.

He added that golf has become part of mainstream pop culture, thanks to various innovative and cross-collaborations with retail brands, as well as celebrities and influencers who started playing golf during the Covid-19 era, because it was one of the earliest sports allowed to be played during the Covid-19 pandemic, while restrictions were imposed on other social and entertainment activities.

“It’s all golfers off the course [who started playing golf in indoor golf centres], influenced by these social media influencers. However, with the evolution the golf industry is undergoing, the barrier to entry into golf for newcomers is lower these days.

“With the growing appeal of golf to people, we continue to invest in the MST Golf Arena, by setting up indoor golf centers with F&B [food and beverage] services alongside our large format retail stores. Many golfers bring their non-golfer friends to experience golf for the first time through this type of venue. Hopefully, some of them can become on-course golfers,” said Ng.

MST Golf Arena is an indoor golf center that combines entertainment, dining and retail. Currently, two indoor golf centers are open at The Gardens Mall and Tropicana Gardens Mall. Its third outlet at Gurney Paragon Mall in Penang is set to officially open in the third quarter of this year.

MST Golf recorded a profit after tax of RM29.1 million in FY2022, compared to RM10.2 million for FY2019, representing a three-year compound annual growth rate (CAGR) of 41.8%. Revenue increased to RM300.9 million from RM176 million, with a three-year CAGR of 19.6% over the same period.

The group posted a net profit of RM8.79 million for its first quarter ended March 31, 2023 (1QFY2023) on revenue of RM86.29 million.

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