AGM on 18th April 2008
Below are observations made on AGM today. [comments by Aspellian]
Malaysia - next Growth Driver[u]
- Largest IT specialty MegaStore in Msia.
- Capitaland "invited" Challenger as a key tenant in Mines Shopping Fair. The rent is reasonable. Mgt always emphasised on affordable rentals (<25% of GP margins) when assessing new locations.
Other tenants include Giant and Daiso.
Mgt is confident of Capitaland's expertise in "building up" the crowd through promotions and the right tenant mix.
[A good strategy of following the right "boss"/landlord. Capitaland has a good track record of turning around non-performing malls; wise move by mgt]
- Challenger will take its time to establish the market through its MegaStore. Megastore will have ~5,000 sqft for backoffice eg. admin and merchanise staff. As more stores are opened in Msia, there will be economies of scale and overheads will reduce.
- Reno cost est. to be RM1m to 2m [much lower than my estimation of S$1.5m; maybe labour and materials cheaper]
- Capitaland has other malls in Msia (5 - 10 malls in the owned and in pipeline) and possible for Challenger to tag along when it is ready to expand. it will be 6mths to 1 year before the expansion. [A good timeline to understand the local market and set up of network]
- Only one Mega Store, the future expansion on Super Stores. Similar to Spore concept. [follow a tried and tested winning formula, with a bigger Msia market compared to the matured Spore retail scene]
- Mgt is mindful of Thailand misadventures in the past, so prudent in the current overseas expansion.
- [Possibility of Msia number of stores to be as much as Spore or even more in 3-5 years time]
RISK FACTORS
Poor understanding of culture/market - [but through the Q&As, it seems that mgt is more prepared and taking calculated steps in their Msia expansion]
New management team / staff - [only a single key management, a certain Mr Ng is from Spore. I will presume it is Mr Ng Kian Teck whom is the Senior Director of Merchandising and inventory control and marketing department. Challenger plans to employ 60 Msians. These staff will undergo training in Spore to understand the working culture to absorb and adopt the "Challenger Way".
Human Resource factor could be Challenger's stumbling block in its expansion in Msia. The Spore team has been around for a long time, so to build up a Msia team that is as efficient and cost-effective may take time.]
Reno cost - easily supported by Spore's strong cashflow
Rental cost - mgt managed to get a competitive rental rate
Others ----xxxxx
Summary
The Msian expansion looks bright. But do not expect as much a significant contribution to bottomline as compared to all those Spore SuperStores opened in FY2006 and FY2007. These SuperStores are following the "winning formula" and Spore entity is enjoying the economies of scale and fruits of labour in laying the foundations.