99 Speed Mart Retail Holdings Berhad: Assessing the Sustainability of Its Stock Rally

The recent stock rally in 99 Speed Mart Retail Holdings Berhad (KLSE:99SMART) has drawn significant investor attention, driven by robust financial performance and aggressive operational expansion. As of April 2025, the company's shares have surged on the back of a 22.5% year-on-year increase in net profit to RM490.27 million for FY2024, according to an NST report, alongside an 8.3% revenue growth to RM9.98 billion, per The Star. However, the critical question for strategic investors remains: Are these improvements in financial metrics and operational resilience sustainable, or does the rally reflect short-term optimism outpacing long-term fundamentals?

Financial Metrics: Profitability and Leverage

99 Speed Mart's FY2024 results underscore its ability to scale profitably. Normalized profit before tax (PBT) rose 27.1% to RM685.1 million, while normalized profit after tax (PAT) climbed 27.7% to RM512.4 million, according to Business Today. These figures, adjusted for one-off expenses, highlight the company's core operational strength. EBITDA for the year reached RM772 million, per MarketScreener, translating to a margin of approximately 7.7%, a slight improvement from prior years.

From a leverage perspective, the company's debt-to-equity ratio stands at 1.25, with total liabilities of RM1.98 billion and equity of RM1.58 billion, per MarketCap. While this ratio suggests moderate debt usage, it is elevated compared to industry peers. However, the interest coverage ratio of 22.1, as noted by Simply Wall St, indicates EBIT of RM734.3 million comfortably covering interest expenses and mitigates concerns about default risk. Long-term debt increased by 5% year-on-year to RM711.8 million, according to AlphaSpread, but the absence of a detailed maturity schedule for 2024–2029 raises questions about refinancing risks.

Operational Resilience: Expansion and Market Positioning

The company's operational performance in 2024 was fueled by an aggressive expansion strategy. It opened 81 new outlets in Q4 2024 alone, bringing the total store count to 2,778, as reported by The Star, and plans to add 250 more in 2025 to reach 3,000 stores nationwide, according to The Sun. This expansion is not merely quantitative but strategic: 99 Speed Mart is targeting underserved markets in Sarawak and leveraging its bulk sales e-commerce platform to diversify revenue streams, a focus highlighted by The Star.

The company's profit margin improved to 4.9% in FY2024, per Yahoo Finance, driven by economies of scale from store proliferation and supply chain optimizations. However, sustaining this margin will depend on managing costs amid rising competition in Malaysia's hypermarket sector. The normalized PBT growth of 27.1% (reported by Business Today) suggests that operational efficiencies are outpacing incremental costs, but investors must monitor whether this trend holds as expansion slows or market saturation increases.

Long-Term Investor Confidence: Catalysts and Risks

For the rally to be sustainable, 99 Speed Mart must balance growth with financial prudence. Its current ratio of 1.74, per MarketCap, indicates adequate liquidity to meet short-term obligations, while the interest coverage ratio of 22.1 (noted by Simply Wall St) reinforces its creditworthiness. However, the debt-to-equity ratio of 1.25 (MarketScreener) remains a cautionary signal, particularly if expansion costs rise or economic conditions deteriorate.

A compelling entry point for strategic investors would require confidence in the company's ability to:
1. Maintain margin expansion through cost controls and pricing power.
2. Diversify revenue streams beyond physical stores, such as through its e-commerce platform.
3. Manage debt prudently, avoiding overleveraging as it pursues its 3,000-store target.

The recent rally appears justified by strong earnings and disciplined leverage, but long-term success hinges on executing its expansion without compromising profitability. If 99 Speed Mart can sustain its normalized PBT growth trajectory while keeping debt metrics stable, the stock could offer a compelling risk-reward profile for investors with a 3–5 year horizon.

Conclusion

99 Speed Mart's FY2024 results demonstrate a rare combination of top-line growth and margin expansion, supported by a robust interest coverage ratio and disciplined operational execution. While the debt-to-equity ratio warrants monitoring, the company's aggressive yet targeted expansion into new markets and digital channels positions it well for sustained growth. For strategic investors, the current rally reflects confidence in these fundamentals, but prudence is advised to assess whether the company's leverage and cost structures can adapt to evolving market dynamics.