MST Golf aims for a hole-in-one

Ng says the group plans to open four more stores in Malaysia in the coming year.

FOUR months after going public, MST Golf Group Bhd is gearing up for a hole-in-one, as its expansion plans take off smoothly.

To note, the golf retail and service provider, which was listed on the Main Market of Bursa Malaysia on July 20, has earmarked 90% of its RM129.6mil proceeds from its initial public offering (IPO) for the expansion of its business.

Speaking with StarBizWeek, executive director and group chief executive officer Ng Yap says the group has utilised RM28.66mil or 22% of the proceeds as of Sept 30, and its expansion plans are progressing as scheduled.

“As far as business is concerned, the expansion plans are pretty much on track,” he says.

While concentrating on its current markets, including Singapore and Malaysia, the group is also on track to open its inaugural store in Indonesia, thus broadening its regional presence.

Ng says the group has opened six new retail outlets locally this year, bringing the total number of stores in Malaysia to 40.

Just last week, the group opened a retail store, which comes with an indoor golf facility in Johor, spanning about 17,000 sq ft.

“That will be the fourth location with indoor golf for the group to continue serving the golfing community in Malaysia better,” he says.

Commenting on indoor golf, Ng says it is gaining popularity rapidly, with over 20 locations in Malaysia. He believes the trend is attracting a younger demographic as well as new players to the game.

“It is a business concept we believe in, but we will not open a standalone indoor golf course. Instead, we will incorporate it as part of our three-in-one concept, where you can buy, play, and eat.

“Importantly, it is designed to drive more traffic into our retail stores,” he says.

Looking forward, Ng says the group plans to open four more stores in Malaysia in the coming year.

Turning to Singapore, the group operates eight stores, and in 2024, it has plans to open a couple more.

When asked about the traffic comparison between Malaysia and Singapore, Ng emphasises that, in terms of revenue, Singapore stores outperform their Malaysian counterparts.

“Our store with the highest turnover is actually in Singapore. Despite being 7,000 sq ft, it generates the highest revenue among all our stores,” he notes.

He highlights that stores in Singapore yield between 20% and 25% higher revenue.

In Malaysia, affordability remains an issue, with higher-end products tending to sell less compared with the city-state.

Asked if there are any shops the group is considering closing down due to non-profitability, Ng points to one shop in Marina Bay, Singapore, and another in Bukit Jelutong, Selangor.

However, he clarifies that the closure of the shops is not due to non-profitability but rather because the landlords are reclaiming the land for development.

In fact, he emphasises that all the shops under the group are profitable.

Turning the attention to Indonesia, Ng says that the group had held a distributorship covering the republic, primarily engaged in wholesale operations.

“However, our core strength lies in retailing and the entire IPO exercise aimed to raise funds for expanding our retail network regionally,” he adds.

Ng further outlines the group’s strategy, emphasising the identification of strong local retailers.

In the case of Indonesia, the group has chosen PT Sinar Eka Selaras Tbk (SES), also known as Erajaya Active Lifestyle, as their partner.

In partnership with SES, MST Golf has formed a joint venture named PT MST Golf Indonesia, with MST Golf holding a 51% stake and Erajaya Active Lifestyle owning the remaining 49% equity interest.

SES, listed on the Indonesia Stock Exchange, is a prominent provider of multi-brand retail and distribution solutions for active lifestyle products in Indonesia.

It is a business vertical of PT Erajaya Swasembada Tbk, which boasts of more than a thousand retail outlets within Indonesia.

“So, we aim to leverage its strengths in sourcing the right locations, importation and distribution, as well as human resources. Simultaneously, this will help mitigate initial operational risks,” Ng explains.

Moreover, he highlights that with the JV, there will be a substantial pool of funds from both MST Golf and Erajaya Active Lifestyle to facilitate significant growth in the Indonesian market.

On the first store in Indonesia, Ng reveals that, through the JV, the group plans to open one store before Christmas next month, with four more lined up for the following year, all within Jakarta.

“However, negotiations are ongoing for various other locations,” he adds.

The first store in Indonesia will showcase the group’s signature three-in-one concept, encompassing retail, indoor golf, and dining, spanning about 17,000 sq ft.

Ng reveals that, following discussions with indoor golf technology suppliers, they believe that Indonesia will emerge as the hub of indoor golf within South-East Asia, primarily due to the size of its population.

“We may not be the first, but our concept is certainly unique. Our expansion has generated significant attention,” he says.

MST Golf partners with over 90 brands, and according to Ng, at least half of them involve distributorship.

In this regard, Ng explains that the group achieves a full margin by having distributorship while engaging in retail.

“Our strategy is also to work closely with brands to obtain the highest possible margin, either through distributorship or as an exclusive retailer,” he adds.

Ng acknowledges that, since the group is currently a 100% wholesaler in Indonesia, transitioning into a retailer is essential.

“The key revenue for us, and also where we can have better control, is through our own retail stores,” he explains.

According to him, 10% of its business in Malaysia is wholesale, while in Singapore, 5% is wholesale.

He expects the wholesale fee in Indonesia to decline next year as the group punches through the market as a retailer.

In terms of expanding into Thailand, Ng says the group is in advanced talks with a couple of strong local retailers, which he hopes to conclude negotiations soon.

“The plan is to open two stores in Thailand by the final quarter of next year,” he adds.

Meanwhile, for Vietnam, the group has plans to open a store by 2025.

With all this expansion in plans, Ng says the group is poised for a double-digit growth in its financial performance.

For the third quarter ended Sept 30, 2023 (3Q23), MST Golf recorded revenue of RM82.3mil, reflecting an 8.4% increase compared with 2Q23.

The group’s profit before tax and net profit were RM3.4mil and RM1.6mil respectively.

However, on a normalised basis, the adjusted profit, excluding IPO expenses of RM4.4mil, would have been RM6mil, equivalent to a 50% increase compared to the previous quarter.

“It is noteworthy that the one-off IPO expenses have been entirely expensed in 3Q23,” Ng adds.

Looking ahead to 4Q23, the group anticipates improved performance compared to its 3Q23 results, primarily due to the seasonal clearance of its stocks and year-end sales.

The group maintains a gross profit margin of about 44%.

He admits that the group is not exempt from inflationary pressures and notes a rise in operational costs.

“Within Malaysia and Singapore, labour costs have increased, and we are actively mitigating the situation,” he adds.”On the industry outlook, Ng notes that post-Covid, golfing activities remain robust and adds that the market is more vibrant with younger demographics.

“Talking to brands in Japan and China, they expect South-East Asia to be a key growth region for golf, with more visits from brand principals,” he says.

He adds that despite indoor golf gaining traction, the group will not transform all its stores into a three-in-one concept.

“The indoor golf concept is more of a longer-term investment. It is designed to lower the barrier of entry for new golfers to pick up the sport,” he explains.

With new golfers entering the scene, he says there are more opportunities for them to purchase golf equipment from their stores.MST Golf debuted on the Main Market at 70.5 sen a share, a 12.97% discount to the IPO price of 81 sen a share.

The counter closed at 49 sen on Thursday.

Commenting on its share price, Ng says the group has no control over it and he believes the share price reflected the current performance of the company.

“The whole idea is we need more time to really materialise or to go out to execute our plans and deliver the numbers,” he explains.

He emphasises that the group is more focused on the business and believes that when it delivers better profits, the market will respond accordingly.