PETALING JAYA: 7-Eleven Malaysia Holdings Bhd’s long-term prospects remain rosy, supported by its expansion drive and synergy realisations with Caring Pharmacy and Berjaya Corp Bhd (BCorp)-related companies, said CGS-CIMB.
The research house said although 7-Eleven Malaysia’s near-term sales could be impacted by weaker footfall in light of the rise in Covid-19 cases and movement restrictions nationwide, it gathers that 7-Eleven Malaysia remains focused on improving its product mix and optimising its cost base. This was illustrated in FY20 when the convenience store segment’s profit after tax margin remained stable year-on-year (y-o-y) at 2.3% (FY19: 2.3%) despite segment revenue declining by 12.7% y-o-y.
“We gather that this was brought about by lower distribution costs and improvements in shrinkages and overtime costs, which led to a steeper decline in operating costs compared to revenue. After adding a net of two outlets in FY20, we gather that 7-Eleven Malaysia is looking to resume its store opening target of 100-150 stores per annum, not including closures.
“Growth prospects for its Caring Pharmacy operations also remain strong, with its target of opening 15 outlets per annum (144 outlets as at end-FY20). Overall, we expect store expansions and a recovery in footfall to underpin our 5.1% core net profit growth forecast in FY21,“ it said in a report yesterday.
The research house said the appointment of Jalil Rasheed as the CEO of BCorp has led to a re-rating of BCorp-related stocks, including 7-Eleven Malaysia, which it think could be due to expectations of better synergy and value realisation among BCorp-related companies.
“While nothing concrete has been announced, we think there could be long-term synergy realisations between 7-Eleven and other BCorp-related retail companies including Caring Pharmacy, in areas such as procurement, logistics and rental negotiations.”
CGS-CIMB retained its add call on 7-Eleven Malaysia with its end-2021 target price forecast raised to RM1.87.
“We remain optimistic about 7-Eleven’s efforts to improve its operating efficiencies and the profitability of its sales product mix while maintaining its store expansion drive, in addition to strong growth prospects for Caring Pharmacy,“ said CGS-CIMB, adding that re-rating catalysts include stronger same store sales growth and a faster-than-expected lifting of movement restrictions nationwide.