99 Speed Mart poised for stronger second half

KUALA LUMPUR: 99 Speed Mart Retail Holdings Bhd is anticipated to generate stronger earnings in the second half of the 2026 financial year, buoyed by seasonal spending and ongoing store expansion. Analyst Walter Aw Lik Hsin of CIMB Securities Sdn Bhd stated resilient demand for essential goods will bolster the convenience store operator's earnings, despite cautious consumer sentiment.

He anticipates earnings to further improve in the fourth quarter of FY26, driven by year-end festive spending, ongoing store openings, and ongoing demand for essential goods. Despite reduced consumer spending, the essentials-heavy and value-oriented strategy of 99 Speed Mart is expected to maintain strong demand, with added benefits from consumer downgrading and increased at-home consumption.

The company currently operates about 3,000 stores (95.2% of its total) under the Sumbangan Asas Rahmah (Sara) program, a government cash-aid scheme. However, the incremental uplift from Sara is expected to gradually decrease as the program expands. CIMB Securities maintains a Hold rating on the stock while raising its target price to RM3.50 from RM3.40, incorporating a higher 2027 price-to-earnings (P/E) multiple of 37 times.

The company's defensive earnings profile and Sara-related benefits are reflected in its current valuation, which stands at approximately 38.5 times 2027 P/E. While the analyst continues to favor 99 Speed Mart for its resilient business model, extensive distribution network, and strong execution history, he adopts a more cautious outlook due to limited room for earnings to fall at the present valuations.

99 Speed Mart reported a net profit of RM163.95 million in the second quarter of FY26, a 13.4% increase from RM144.63 million a year earlier. The profit surge was attributed to the continued growth of its outlet network and the nationwide implementation of earlier opening hours, leading to higher customer traffic. Revenue rose 13.6% to RM3.1 billion from RM2.7 billion a year earlier.

For the first half of FY26, net profit grew 21.8% to RM352.5 million from RM289.5 million, and revenue increased 15.5% to RM6.14 billion from RM5.3 billion. Hong Leong Investment Bank Bhd's analyst Jonathan Ooi remains positive on the company's outlook, citing its defensive consumer staples business, 3,151-store network, and ongoing structural cost efficiencies.

The opening of a new distribution center in Semenyih in July is expected to enhance supply chain efficiency for around 180 nearby outlets. Revenue should further benefit from an expanded product mix due to the nationwide rollout of home appliances in physical stores and 99 Bulksales, as well as new installment plans aimed at increasing affordability.

Although macroeconomic challenges such as rising living costs and cautious consumer spending persist, the analyst expects margins to remain stable due to the company's ongoing energy-efficiency initiatives. Hong Leong Investment Bank has maintained a Buy rating on 99 Speed Mart with a target price of RM4.24. RHB Research analyst Soong Wei Siang also keeps a Buy rating with a RM4.02 target price.

Soong believes the company's consistent sales volume trend, staples-oriented product mix, and widely accessible store locations will sustain steady sales momentum. The retailer is also well-positioned to capitalize on the Sara program, with about 3,000 outlets enrolled as panel stores. Management is exploring adding fewer than 10 outlets in China, a venture still in the experimental stage.

In the long run, earnings growth could be supported by expanding the addressable market through diversified sourcing, electrical appliance sales, the bulk sales platform, and overseas expansion. Sentiment towards the stock may also improve if the 2027 Budget allocates a higher budget for Sara and other fiscal support measures to stimulate consumption.