KUALA LUMPUR: Convenience store chain 7-Eleven (M) Sdn Bhd will be the growth driver for the enlarged Berjaya Retail Bhd (BRetail) group due to its stronger profit growth, according to Kenanga Investment Bank Bhd.

Kenanga, independent adviser to Berjaya Corporation Bhd’s (BCorp) non-interested shareholders in BRetail’s proposed listing exercise, said 7-Eleven’s net profit was expected to increase by 131.4% for financial year ending Dec 31, 2009 (FY09) from the previous year with a 5.4% rise in revenue.

This was due to the implementation of its franchise business model.

As for Singer (Malaysia) Sdn Bhd, it said the company provided stable revenue and consistent income base. However, it was expected to see a decline in revenue and profit before tax by about 1.8% and 8.3% respectively for 2009 compared with the financial year ended April 30, 2009 while maintaining revenue base of RM350 million.

In its independent circular issued yesterday, Kenanga said the proposed BRetail listing was fair to BCorp’s non-interested shareholders, based on the higher premiums accorded to 7-Eleven and Singer.

It also said BCorp shareholders would have direct investment in Singer and would be able to participate in the anticipated growth of 7-Eleven’s business.

“BCorp’s shareholders will be able to realise liquidity and marketability of an otherwise illiquid investment as Singer is presently an unlisted subsidiary within the BCorp group,” it said.

Kenanga said BCorp shareholders’ interest was also safeguarded as they would own BRetail shares and could “influence the corporate direction and actions of BRetail as well as participating in growth and prospects of BRetail”.

Last month, BCorp announced a corporate exercise in which it would sell Singer to BRetail for RM360 million and 7-Eleven at RM600 million.

BRetail would pay for the assets by issuing new shares, irredeemable convertible preference shares (ICPS) to Singer and 7-Eleven and assume debts owed by BCorp or its related companies.

BCorp would distribute dividend-in-specie of one BRetail share for every 10 BCorp shares. The number of BRetail shares to be distributed as dividend-in-specie would range from 337.6 million to 471.9 million shares depending on BCorp’s share capital.

Kenanga said BRetail was acquiring Singer and 7-Eleven at the comparable price-to-earnings (PE) multiples of about 23.5 times, on the back of Singer’s adjusted consolidated profit forecast for 2009 of RM15.34 million and 7-Eleven’s consolidated profit forecast of RM25.49 million for financial year ending Dec 31, 2009.

It said Singer has generated a consistent revenue level of RM300 million to RM350 million and it generated a net profit base of approximately RM20 million in the past two financial years and was expected to provide a consistent income base to BRetail group.

Based on the PE multiples of comparable companies, Kenanga said Singer’s was at 16.9 times based on the profit forecast for 2009 compared with 12.8 times for its peers. For 7-Eleven, the PE multiple was 23.5 times compared with 18.2 times for comparable companies.

“The premiums accorded to 7-Eleven and Singer are both at approximately 30% higher than the relevant companies’ average,” it said.

On the effects of the proposed listing of BRetail, it said assuming it was effected as at July 31, 2009, the proposed listing would result in a gain of about RM123.7 million.


This article appeared in The Edge Financial Daily, October 14, 2009.