KUALA LUMPUR 7-Eleven Malaysia Holdings Bhd
's trading stock took a tumble in early Monday trade following news it was proposing to dispose of its 75% stake in Caring Pharmacy Group Bhd to pharmaceutical rival BIG Pharmacy Healthcare Sdn Bhd.
The share opened on a slide at RM2.10 a share before tumbling to a low of RM1.92 or 13.18% below its reference price. As at 10am, there were 154,800 shares crossed.
The sell-off erases all the gains the share had made in the previous week, and puts it on track to its lowest close since March 2023.
7-Eleven said in a bourse filing last Friday it had received an offer from BIG to acquire its entire equity interest in Caring for RM637.5mil.
It said the deal included the acquisition by BIG of all Caring's subsidiaries and associated companies, which own and operate the retail pharmacy businesses under the CARiNG, Georgetown and Wellings brands, as well as any manufacturing and distribution of in-house products in Malaysia.
“The offer includes the acquisition of all intellectual property rights currently owned and utilised by the Caring Group and the Indonesian businesses, including the three brands and all in-house brands sold by the Caring group but excludes those in Indonesia operated by PT Era Caring Indonesia and PT Era Farma Indonesia,” it added.
According to Kenanga Research, the disposal is positive for 7-Eleven as it sees little synergy between the group's CVS operation and the retail pharmacy business.
it added that there has been no super profits from the retail pharmacy business post-pandemic.
"We believe SEM will be better off redeploying its capital and resources towards growing its CVS business," it said in a company update.
The research firm added that the transaction implies a disposal gain of RM214.3mil or RM1.30 a share, given the cost of investment in the stake was RM423.2mil.
Kenanga also slashed its FY24 top line forecast for 7-Eleven by 54% although the decline in earnings before interest and taxation (Ebit) will be only 5% CVS business.
It said the disposal will be earnings accretive at the net level of 11% on a 41% reduction in interest expenses.
"The disposal proceeds will turn 7-Eleven’s net debt and net gearing of RM435.5mil and 2.9x as at end-March 2023 to a net cash of RM182.3mil," it said.
Kenanga reiterated its "outperform" call on 7-Eleven with a target price of RM2.59.
On factors it finds favourable, it said the counter is a pandemic reopening play while its long-term growth potential is being driven by 7CAFe stores.
It added that there were also efficiency gains from the insourcing of product distribtion as well as improved oeprating leverage of its food processing unit.
Caring is a 75%-owned subsidiary of Convenience Shopping (Sabah) Sdn Bhd (CSSSB), which in turn is a wholly-owned subsidiary of 7-Eleven.
Motivasi Optima Sdn Bhd owns the remaining 25% equity interest in Caring.
The ultimate shareholders of BIG are the founding family who collectively owns 65% equity interest in BIG Pharmacy and Creador V L.P. who owns 35% equity interest in BIG Pharmacy.
BIG was co-founded by Lee Meng Chuan and Lim Sin Yin, Malaysian pharmacists, who have grown the business in the Klang Valley to all across Malaysia.
