10 things to know about Senheng New Retail Berhad before you invest

Senheng New Retail Berhad (“Senheng”) recently launched its prospectus ahead of its listing on Bursa Malaysia’s Main Market involving the public issuance of 250 million shares and an offer-for-sale of 139.5 million existing shares at an issue price of RM1.07 per share to raise an estimated RM267.5 million. 

Of the 250 million new shares, 149.5 million shares will be placed out to institutional and selected investors, while 48 million shares will be placed out to bumiputera investors approved by the Ministry of International Trade and Industry (MITI).

Another 22.5 million shares will be made available for application by eligible directors, employees and persons who have contributed to the group’s success.

The remaining 30 million new shares will be made available for application by the Malaysian public via balloting. 

Meanwhile, 139.5 million offer-for-sale shares will be placed out to bumiputera investors approved by MITI. 

If you are looking at Senheng with interest, here are 10 things to know before you invest.  

1. Business overview

Senheng is the largest consumer electrical and electronic chain retail in Malaysia. The Group retails consumer electrical and electronic (E&E) products through a chain of 105 physical stores which are located throughout Malaysia and online platforms.

Senheng stores carry about 10,000 SKUs from over 280 different brands. The Group operates under four store concepts namely, “Grand Senheng Elite”, “Grand Senheng”, “Senheng” and “senQ” and intends to introduce a new concept under “Grand senQ”.   

The following map depicts the locations of its physical stores in Malaysia.

(Source: IPO prospectus)

2. Products and services

Senheng’s products and services are broadly categorised as follows:

(Source: IPO prospectus)

The majority of the Group’s revenue is derived through the retailing of consumer E&E

Products, followed by the provision of warranty services.   

(Source: IPO prospectus)

In terms of products sales, the bulk of the Group’s revenue is derived from the retailing of digital gadgets, audio visual equipment and home appliances. 

(Source: IPO prospectus)

3. Retail channels and loyalty programme

Retail channels

Senheng’s main retail channels comprise physical stores, online stores and others (which comprise sales of products and vouchers to corporate clients). Over 90% of the Group’s revenue is earned via its physical stores. 

(Source: IPO prospectus)

Loyalty programme

Senheng has its own loyalty programme known as PlusOne, which has 3.24 million registered members, of which 2.94 million paid registered members (i.e. have signed up for a paid membership tier and are entitled to enjoy benefits such as free PlusOne extended warranty).

All PlusOne members enjoy member prices and free delivery for their purchases. Moreover, PlusOne members (save for PlusOne Corporate members) are able to collect S-Coins on their purchases. In the past three financial year ends (FYEs) 2018 to 2020, total registered PlusOne members have grown at a compound annual growth rate (CAGR) of 5.60%. 

4. Major suppliers 

Senheng’s major suppliers comprise brand principals whose products it sells. While the Group does not enter into long term agreements or contracts with its suppliers, it does not face any material supply disruption or delays, owing to longstanding business relationships.  

Senheng’s top five suppliers by total purchases for the FYE 2020 is as follows. 

(Source: IPO prospectus)

5. Business strategies and future plans 

Senheng’s business strategies and future plans are as follows:

(a) Enhance customers’ shopping experience and strengthen its market presence by upgrading its chain of physical stores

(i) The Group aims to be the territory champion within every five-kilometre radius of its physical stores by being the largest in terms of floor space and have the largest variety of products so as to provide customers with a wholesome retail experience. Its wide range of product offerings allows customers to physically browse a variety of models of the same product category from multiple brands before deciding on a purchase.

(ii) The Group intends to increase the size of its individual retail outlets in order to be able to display a wider range of products from more brand principals and to provide a more comfortable shopping experience to customers by opening new and/ or upgrading certain existing “Senheng” stores into “Grand Senheng” stores and “Grand Senheng Elite” stores as well as introducing a new store concept known as “Grand senQ”. 

(b) Expand product portfolio through the development of a new brand distribution business which includes international brands and its own house brand

(i) Since 2020, Senheng was appointed as the exclusive distributor in Malaysia for two international brands and are involved in the direct importation and distribution of these brands. In August 2021, the Group also launched its own range of cookware products under its house brand “Delighto”.

(ii) Senheng will develop the new brand distribution business by continuing to look for suitable brands to import and distribute in Malaysia, focusing on kitchen appliances, home electrical, personal and beauty care appliances, and Internet-of-Things (IoT) products. 

(c) Increase warehouse storage space and strengthen logistics network in East Malaysia

Senheng is in the midst of expanding its Kota Kinabalu regional hub by constructing a new adjacent warehouse and increasing the number of loading bays. The Group is also in the midst of relocating its Kuching regional hub to a larger warehouse which it acquired in 2020 and is currently under renovation. Moving forward, it intends to construct a Bintulu regional hub which will be the distribution centre for physical stores and customers in Bintulu and Sibu.

(d) Boosts digital infrastructure

Moving forward, Senheng intends to implement the following enhancements and step-ups to its digital infrastructure over the next three years which comprise of the following: (i) establishing a data lake and upgrading existing technology platforms, (ii) cloud-based disaster recovery system, (iii) enhance its warehouse management system (WMS) and enterprise resource planning (ERP) systems, and (iv) maintenance of its digital infrastructure.  

(e) Enhance PlusOne loyalty programme

(i) On 1 June 2021, the Group introduced a new credit token which can be earned by its PlusOne members known as “S-Coin”.

(ii) It plans to increase the benefits enjoyed by its PlusOne members by relaunching a new “Senheng App”. This is a long-term initiative to enable access to a whole new lifestyle ecosystem that provides a host of services and convenience to new members.

6. Use of IPO proceeds

The gross proceeds arising from the public issue of approximately RM267.50 million will be utilised in the following manner: 

(Source: IPO prospectus)

7. Industry prospects and competitive landscape

Based on the independent market research report enclosed in the IPO prospectus, E&E retail sales in Malaysia grew from RM40.45 billion in 2018 to RM54.56 billion in 2020, at a CAGR of 3.99%.

Year to date September 2021, E&E retail sales was recorded at RM43.76 billion, whereby the average monthly sales during the nine months’ period of RM4.86 billion improved by 6.81% from average monthly sales in 2020 of RM4.55 billion. 

The E&E retail market is fragmented. Senheng competes not only with other E&E retailers, but also companies who sell consumer E&E products through departmental stores and/ or online platforms. Moreover, the Group also faces competition from brand principals who have physical and online retail stores (specialty stores) as well as specialty electronic stores selling digital gadgets and / or audio visual products. 

According to the independent market research report, Senheng’s 2020 market share in the retail sales of home appliances, digital gadgets and audio visual equipment was at 12.60%, 0.94% and 2.57% respectively. 

The table below sets out the top five E&E retailers in Malaysia by revenue. 

(Source: IPO prospectus)

8. Financial highlights

The following table sets out the financial highlights of the group for FYE 31 December 2018 to FYE 31 December 2020 and FPE 30 June 2021: 

(Source: IPO prospectus)

Senheng targets a dividend payout ratio 30% of its profit after tax (PAT) attributable to owners of the company upon listing. That said, the Group does not intend to declare and pay any dividends in 2021.  

9. Promoters and substantial shareholders 

The promoters and substantial shareholders are set out below:

(Source: IPO factsheet)

Mr. Lim Kim Heng (Mr. KH Lim) is the Group’s non-independent executive chairman. Under his leadership, Senheng has grown from a single shop into the largest consumer E&E chain retailer in Malaysia.  

Mr. Lim Kim Chieng (Mr. KC Lim) is the Group’s president and non-independent executive director. He is mainly responsible to the sales, operations and marketing aspects of the Group’s business including identifying business opportunities and sales trends as well as initiating and implementing new operational policies and strategies, including the introducing of a centralized logistics model to improve the efficiency its supply chain.

Mr. Lim Kim Yew (Mr. KY Lim) is the Group’s non-independent non-executive director. He is a co-founder of Senheng with Mr. KC Lim and Mr. KH Lim. Mr. KY Lim has stepped down from the day-to-day operations of the Group since 2017. 

10. IPO valuation  

Based on the issue price of RM1.07 per share, Senheng will achieve a market capitalisation of RM1.6 billion upon listing. This translates to a price earnings ratio (PE) of 28.78 times (based on FYE 31 December 2020 profits). 

As with all new listings, investors should wait and monitor if the management can execute its business plans and deliver on its commitments, before rushing to make an investment.  

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