UPDATE 1-7-Eleven Malaysia in solid debut, retail investors keen on growth outlook

Thu May 29, 2014 11:38pm EDT

* 7-Eleven Malaysia up 6 pct after $225 mln IPO

* Retail investors buying on growth prospects -fund manager

* Institutional investors less keen due to valuation concerns (Recasts with outlook for company, fund manager comment)

By Yantoultra Ngui and Al-Zaquan Amer Hamzah

KUALA LUMPUR, May 30 (Reuters) - 7-Eleven Malaysia Holdings Bhd rose 6 percent in its first day of trade, as investors bet on rosy long-term prospects for Malaysia's dominant convenience store operator in a fast-growing sector.

Controlled by Malaysian tycoon Vincent Tan, the company commands 82 percent of a still underdeveloped market in terms of both reach and services offered when compared to counterparts in Taiwan and Japan.

Prospects for growth enticed retail investors to the stock on Friday, though institutional investors were less visible as valuations for the company looked somewhat stretched, market players said.

"Historically it has been overvalued, but you have to see the earnings potential. The company has already spent on its branch network, now it's just a matter of being more creative," said a local fund manager, who declined to be identified.

"If you see the modus operandi of 7-Eleven in Japan & Taiwan, they've gone beyond the core business and into postal and financial services," he said.

But institutional investors were less enthusiastic about running up the stock, noting that its 12-month forward price to earnings ratio of around 20 times looked pricey compared to other domestic retail companies. Department store operator Parkson Holdings Bhd and Amway (Malaysia) Holdings both trade at around 17 times.

Shares in 7-Eleven Malaysia were trading at 1.46 ringgit on Friday morning and at one point touched a high of 1.51 ringgit, compared with their IPO price of 1.38 ringgit. The broader market was flat.

The convenience store chain operates under a licensing agreement with Japan's Seven & i Holdings Ltd. There is no equity relationship between the two firms.

ROOM TO GROW

Malaysia had just 131 outlets per one million people in 2012, according to business consultancy firm Vital Factor. That compares with 192 outlets per one million people in Thailand, 340 in Japan, and 429 in Taiwan.

Annual spending per person at convenience stores in Malaysia was just 116 ringgit in 2012, compared to 1,242 ringgit in Taiwan and 1,691 ringgit in Japan, Vital Factor added.

Raising some $225 million in its initial public offering, 7-Eleven Malaysia plans to double the pace of store openings with 600 new stores planned in the next three years. It currently has almost 1,600 outlets.

The listing is the country's biggest IPO for the year to date, according to Maybank Investment Bank's chief executive John Chong, as the market slowly rights itself after election jitters last year.

Malaysia's IPO market has the potential to more than double this year to $7.1 billion, according to information from bankers compiled by Reuters. But key deals including an up to $2 billion sale of state investor 1Malaysia Development Bhd's energy assets and a $1 billion IPO for independent power producer Malakoff Bhd have experienced delays, bankers have said.

Cornerstone investors in 7-Eleven Malaysia include AIA Company Ltd and Matthews International Capital Management. Unlike many other IPO deals in Malaysia, cornerstone investors in 7-Eleven Malaysia are not subject to a lock-up period.

Maybank and UBS were the joint global coordinators of the deal and were also joint bookrunners along with CLSA, CIMB and Kenanga. (Additional reporting by Chang-Ran Kim in Tokyo and Denny Thomas in Hong Kong; Editing by Edwina Gibbs)

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