Pan Malaysia to take over A&W Malaysia for RM69.5mil, diversify into F&B business

MALAYSIA: Pan Malaysia Corporation Bhd (PMC) is planning to diversify into the food and beverage (F&B) business by acquiring a 49% interest in A&W Malaysia Sdn Bhd for RM69.5 million (US$14.86 million) from Inter Mark Resources Sdn Bhd, in a related party deal.

The purchase price will be satisfied through a combination of RM41.7 million and the issuance of 111,127,352 new shares in PMC at RM0.25 a piece to Inter Mark, which is already a substantial shareholder of PMC.

PMC will seek shareholders’ approval to go ahead with the deal as it is expected to either, divert 25% or more of the net assets of PMC from its current operations or, contribute more than 25% of the group’s net profit.

PMC Group was principally involved in the manufacturing, marketing and distribution of confectionery and cocoa-based and other food products and investment holding.

The cash portion of the deal will be funded via a combination of the PMC Group’s internally-generated funds and the proceeds from the disposal of 2.43 hectare leasehold land in Petaling, Negeri Selangor for RM41 million, which was completed on August 30, 2023

The purchase was arrived at on a willing-buyer willing-seller basis based on the operating profit of the A&W Group of approximately RM17.72 million, which is the combined earnings before interest, tax, depreciation and amortisation (EBITDA) after deduction of the rental expenses of the A&W Group for the financial period beginning 1 Jan, 2022, to 31 Dec, 2022.

“The range of fair market value of the 49% equity interest in the A&W Group between
RM58.50 million and RM74.84 million as at 31 July 2023 being the date of opinion, as appraised by Strategic Capital Advisory Sdn Bhd, the independent valuer appointed by the company,” PMC said in a statement with Bursa.

It said the acquisition represents a strategic move for the PMC Group to grow the promising F&B business based on the historical performance of the F&B business since the completion of the initial acquisition and the positive prospects of the fast-food market in Malaysia.

“The company is optimistic that the proposed acquisition would contribute positively to the PMC Group’s earnings after taking into consideration the prospects of the A&W Group.

“Thus, the proposed acquisition is expected to provide the PMC Group with a good long-term profitable business with further growth opportunity in various parts of Malaysia.

“In addition, upon completion of the proposed acquisition, the entire earnings of the A&W Group will be attributable to the PMC Group,” it said.

Providence Strategic Partners Sdn Bhd projects the fast food market to grow from RM12.2 billion in 2022 to RM16 billion in 2025 at a CAGR of 9.5%.

The growth of the fast food market in Malaysia will be largely driven by recovery in post pandemic consumer spending; population growth and rising urbanisation; current lifestyle trends of the population; and mobile applications, electronic wallets, and social media as new marketing channels.

“Given the nostalgic brand memories with the baby boomers and the brand recognition amongst the millennials, product differentiation through proprietary drinks, for example, RootBeer and RootBeer Float and food such as beef coney, chicken coney, and curly rings, and an increased focus on convenience, cost, choice, consistency and cleanliness.

“The company expects the A&W Group will be able to capture an increasing share of the expanding quick-service restaurant market in Malaysia.

“Premised on the above and the positive outlook of the fast-food market in Malaysia, the company is optimistic of the long-term prospects and outlook of the A&W Group and is of the opinion that the proposals are expected to contribute positively to the future earnings of the PMC Group,” it said.

A&W Malaysia was the first fast-food restaurant in Malaysia when it started operations in 1963.

Currently, the A&W Group operates 97 outlets in Peninsular Malaysia and three outlets in East Malaysia. The A&W group is expected to continue its expansion in Malaysia with an aim to open an additional 65 outlets by year 2027. The expansion will be funded through internally generated funds and external financing.

The A&W Group recorded a loss after tax of RM7.97 million for the 18 month period ended 30 June 2023 mainly due to higher cost of sales and operational costs of RM229.35 million from lower gross profit margin due to increase in cost of raw materials; and increased labour costs, particularly for the last six months of the financial period under review, due to additional cost incurred to overcome staff shortage issues and reliance on foreign workers.