BJ Retail-Can it Go Up?

Well,  BJRetail (BJR) has been listed at long last.

In spite of the oversubscription, it failed to get good premium values on listing.

Right now, it is trading at 48 sen, 2 sen below par. So for those who wanted to buy excess rights issue, this is your chance. Do not expect this share to go up anytime in price soon because the market is full of sellers. Until such time when the dgestion has complete and the supply and demand forces are equally matched, then there is hope of a uptick in prices. If not, just wait it out.

BJR was listed on 16 August and the peak price was 53 sen. Then it gravitated to about 49 sen before ending at 50.5 sen. Subsequently, a tsunami of sellers came out on 17 August to drive to price down to 47 sen. Today it even went to a  low 46.5 sen. I think Vincent is cashing out some of his dividend in specie.

Let us look at some information on this counter.

Currently there are about 1150 7-Eleven stores nationwide, of which 615 stores are in the Klang Valley and 116 in Johor. Its target is to have 2000 stores within five years. So, an increase in the number of stores should mean an increase in sales revenue.

For FY2009,ending December 31st, 7-Eleven achieved a sales revenue of RM1.185 billion and profit after tax of  RM25.4 million.

Besides opening new stores, 7-Eleven is looking forward to providing charged services as well as another revenue stream.

The retail business is generally perceived to be highly competitive. However, 7-Eleven has the  lion’ share of the convenience store market in Malaysia as to the government’ has banned the entry of foreign convenience stores.

Apparently, about 60% of the sales in 7-Eleven stores is generated from 7pm-7am. This means that these stores do not  compete head-on with hypermarkets and traditional sundry shops.

In short, BJR’s convenience stores business is in the high growth market where competition is minimal, at least for now.

Nonetheless, 7-Eleven is no the only growth story in BJR, in which Tan Sri Vincent owns a 51.8% stake after its listing exercise. BJR also sells sewing machines, home appliances and furniture under Singer brand and distributes motorcycles.

Singer has been providing micro consumer credit to customers who purchase its home appliances for a long time. Barely 15% if its sales are in cash. The bulk of sales is on credit and paid off in installments.So, you can see a steady income flow from here.

The provision of credit facilities is yet another income stream for BJRetail.  In future consumer could become a major income avenue for BJRetail should the company manage to raise more working capital to expand such business.

The company’s non performing loans represent only 4% of Singer’s total sales revenue.

Let us look at the valuation.

BJR's IPO price is at 50 sen per share. This implies a PER of nearly 22 times based on proforma EPS of 2.3 sen for FY2009 ended Dec 31.Convenience stores contributed nearly 75% to BJR’s revenue and 64% gross profit of RM490 million.

Many think that this valuation is steep in terms of PER, which is close to that of Parkson Holdings. Also they feel, the profit margin that BJRetail is slim.

Based on such unimpressive figure, RHB has rated the share to be worth  51 sen; Kenanga: at  0.49 and TA at 53 sen.

Furthermore, there is the potential shareholding and earnings dilution as a result of the conversion of a chunk of ICPS. There are 962 million ICPS for BJRetail. Through Vincent Tan's investment vehicle Premier Merchandise Sdm Bhd, there is approximately 92% of the ICPS while Cosway owns 7.7% of it. The ICPS were issued when BJRetail acquired 7-Eleven and Singer from Tan and Cosway Corp respectively.

PS:

In a posting to Bursa KL, it was reported that Vincent Tan through Berjaya Sampo Insurance was in the market mopping up the BJR shares. The shares closed a sen up at the final bell.

This is a good sign as  the excess supply will eventually be kept as long term  investments by this insurance company.

With that, let us see now whether BJR share can do magic on the Bursa or will it be another dumdum.