Will Dego Ride be a drag on Vincent Tan’s 7-Eleven?

By Doreenn Leong

MANY big corporations have joined the technology-based start-up bandwagon by taking a stake in some of the fledging outfits in this sector.

Only recently 7-Eleven Malaysia Holdings Bhd, which is controlled by tycoon Tan Sri Vincent Tan, announced that it is buying a 46.45% stake in Myinteractive Sdn Bhd (MSB) for RM7.51 mil.

MSB is the owner of Dego Ride, which is involved in the provision of delivery services in Johor.

At the time of announcement on Dec 27, 2019, 7-Eleven said MSB was in the process of securing the necessary licence and approval to run the electronic hailing motorcycle taxi services (e-hailing bike services) in Malaysia. 

Dego Ride was apparently given the green light to start its services despite the lack of announcement from the government. The company launched its services on Jan 1, 2020. Dego Ride was banned by the previous government due to safety concerns.

Let’s focus on 7-Eleven first. Its rationale for investing in MSB is to use the transport app to deliver goods from 7-Eleven stores to its customers.

Granted that the investment sum may not be a huge figure for 7-Eleven, which has a market capitalisation of RM1.6 bil as at Dec 31, 2019, is the deal good for the convenience store operator?

7-Eleven announced on Dec 27 that its wholly-owned subsidiary company, 7-Eleven Malaysia Sdn Bhd, has entered into a subscription agreement for 490,030 new shares at RM15.33 a share, or a 46.45% stake in the enlarged issued share capital of MSB for RM7.51 mil cash.

How was the valuation done for MSB, which is still loss-making? Based on the latest available financial statement filed with the Companies Commission of Malaysia (CCM), MSB posted a net loss of RM41,939 for the financial year ended Dec 31, 2018 on the back of RM36,440 revenue.

MSB was incorporated on May 26, 2009 and has an issued share capital of 565,000 ordinary shares of RM1 each.

MSB provides delivery services, web development, design and consultation services, and is the operator, registered and beneficial owner of three mobile applications named “Dego App”, “Dego Partners” and “Dego Orders”.

That said, would it have been a better option for 7-Eleven to work with established e-hailing bike service providers to deliver its goods to customers instead of taking a stake in MSB and thereby becoming somewhat committed to a single service?

For instance, ride-sharing company Grab already has an established presence and a wide reach. It has in recent years expanded its services from transportation to offering food and goods delivery as well as digital payments services via mobile app.

MSB probably would be competing with the likes of GrabBike and Indonesia’s Gojek, which has indicated its interest to participate in the government’s proof of concept trial (POC programme) for e-hailing bike services in the Klang Valley for six months starting in January 2020.

The POC programme is expected to provide the government with essential data to evaluate the demand for the e-hailing bike services while working on drafting the legislation to govern the service and consider expanding it to other areas if there is demand.

MSB has gone ahead with Dego Ride services on New Year’s Day with over 700 approved riders. 

MSB founder and CEO Nabil Feisal Bamadhaj said on January 1, at its launch ceremony, which was attended by Youth and Sports Minister Syed Saddiq Syed Abdul Rahman, the bike e-hailing operation currently covered areas from Putrajaya to Shah Alam.

The company expects to widen its coverage and is in the process of vetting over 4,000 rider applications.

But based on earlier reports, the government’s decision to approve the ride-hailing proposal was only agreed “in principle”, with a thorough framework study to be conducted by the Transport Ministry first.

Does this mean other players can start their e-hailing bike services already? In the meantime, is there a proper regulation for these players? 

Huge investments

For these start-ups, they will need to pump in huge investments to garner a big market share in this new segment.

As such, it is a timely boost for MSB to be able to rope in 7-Eleven to provide the necessary funds to gain market share. But minority shareholders of 7-Eleven would want to know the growth projections and more importantly, when will MSB be profitable?

According to 7-Eleven in its filings to Bursa Malaysia, the existing shareholders of MSB are Nabil Feisal (95.23%) and Qinetics Solutions Sdn Bhd (4.77%).

Further checks show that Qinetics is owned by Mol.com Bhd with an 83.97% stake, Tan Tuan Khai (7.01%), Chang Yit Fei (7.01%) and Wong Sui Ting (2%). Mol.com is a unit controlled by Vincent Tan. It appears that the tycoon already has an indirect stake in MSB and is strengthening his grip in the company via 7-Eleven.

7-Eleven has been faring reasonably well despite intense competition in the convenience store business. It posted a higher net profit of RM42.71 mil in the nine months ended Sept 30, 2019 compared with RM38.82 mil a year ago on the back of increased revenue of RM1.77 bil versus RM1.66 bil.

While 7-Eleven’s entry into Dego Ride is a shot in the arm for the latter, there may be a short-term drag on the former as profits will be late in coming. Perhaps it would have been better for Vincent Tan to have used his private vehicle for the investment and not a public-listed company. – Jan 2, 2020



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