Mercurius diversifies into grocery business, aims to open over 500 stores across region

CATALIST-LISTED Mercurius Capital Investment is diversifying into the grocery business, and the company's ambition is to grow into a network of over 500 stores across the region over the next three years.

In an interview with The Business Times on Monday, Mercurius chairman and chief executive officer Chang Wei Lu said in Mandarin that amid the Covid-19 pandemic, it was decided that the grocery business was an essential service with huge demand.

"It's an opportunity to go into a business that is sustainable in the long run, and provides that actual cash flow for us also," he added.

The investment holding company entered into an agreement on Monday to acquire Songmart Holdings for an aggregate consideration of S$36 million. This follows a term sheet signed in April for the proposed acquisition.

The target group is principally engaged in the business of trading of foodstuff, groceries, sundry goods and daily necessities, as well as the operation of 12 mini-marts and convenience stores under the Songmart brand, and a premium supermarket under the Granville brand in Malaysia.

Mr Chang said the company is "laser-focused" on growing its key market of Malaysia, and plans to "aggressively expand" the store network in the next few years. Beyond Malaysia, Mercurius is also planning to open Songmart and Granville stores in Singapore, Indonesia, Thailand and Vietnam; and is planning to develop an online platform to complement their physical store strategy.

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"Given the huge size of these markets, we have the ambition of becoming a 500-store group and ecosystem," Mr Chang said, adding that the company expects to fund the expansion via placements of around S$100 million as well as through bank borrowings.

This is not the first time that Mercurius is diversifying its business into new segments. In 2017, shareholders had given approval for the company to diversify into its current focus - property development and investment. Previously, Mercurius - whose former names include CCFH and Friven & Co - had businesses in children's fashion, as well as bedding and bed linen.

Mr Chang, who is also the largest shareholder in Mercurius, said the company had been identifying suitable segments to enter in order to provide good returns for investors, but plans to expand into the Thai tourism sector - with developments of Sheraton and Club Med resorts in Phuket and Krabi - had been impacted by the Covid-19 pandemic.

Mercurius had said previously that negotiations with potential financial institutions to secure a construction loan for development of its property joint venture project, Sheraton Phuket Grand Bay Resort, are still on hold.

Even so, Mercurius plans to continue with its property business.

"Our property business is still our mainstay. To continue it, it's something that we want to push for," Mr Chang said, adding that the grocery business line would enable it to generate regular income while retaining the potential to get into the property and resort business when the time comes.

For FY2020, Mercurius reported no revenue and a net loss of S$2 million with net current liabilities of S$4.2 million. Its independent auditor's report contained a disclaimer of opinion, with the auditors highlighting losses and liabilities that cast doubt on the group's ability to continue as a going concern.

Mercurius expects the proposed acquisition of the grocery business to improve its financial standing.

The proposed acquisition will be satisfied with the allotment and issuance of 200 million new ordinary shares at S$0.18 per share over three equal tranches. The second and final tranches will be issued following the receipt of Songmart Holdings audited accounts in FY2022 and FY2023 respectively, and are subject to adjustments in the event certain profit targets are not met.

The total shares being issued for the proposed acquisition represent around 15.1 per cent of the existing issued share capital of Mercurius as of Monday.

The target group recorded profit before tax of around RM9.4 million (S$3 million), based on the unaudited pro forma financial statements for the financial year ended Dec 31, 2020. On a pro forma basis, Mercurius' earnings per share for FY2020 would be 0.073 Singapore cent after the proposed acquisition, compared to a 0.15 cent loss before, while net tangible assets per share after the proposed acquisition would increase to 0.58 cent compared against 0.32 cent. (see amendment note)

The proposed acquisition is expected to be completed in the next five to six months, and is subject to certain conditions. These include completion of due diligence, and approval of Mercurius' shareholders for the proposed business diversification at an upcoming extraordinary general meeting.

Mercurius shares last traded at 9.7 Singapore cents on Thursday, before a trading halt was called.

Amendment note: The article has been amended to reflect the company's clarification that earnings per share should be 0.073 Singapore cent instead of 0.73 cent.