CGS-CIMB Research said that 7-Eleven Malaysia aims to open 50 new 7-Cafe stores and refurbish more than 50 existing stores in and outside the Klang Valley.
PETALING JAYA: 7-Eleven Malaysia Holdings Bhd
will utilise the proceeds from the disposal of its 75% equity stake in Caring Pharmacy Group Bhd to enhance and grow its convenience store business especially its 7-Cafe chain.
CGS-CIMB Research said based on its estimates, the 7-Cafe stores have daily sales that are 1.8 times higher than 7-Eleven stores. Hence, 7-Eleven Malaysia aims to open 50 new 7-Cafe stores and refurbish more than 50 existing stores in and outside the Klang Valley, according to the research house.
The completion of 7-Eleven Malaysia’s new fresh food commissary, targeted by the end of 2023, will also allow the group to further bolster its higher-margin fresh food offerings across its 7-Cafe stores from the financial year 2024 (FY24).
According to CGS-CIMB Research, this will lead to a more favourable product mix, which could bode well for the group’s future earnings.
7-Eleven Malaysia had accepted an offer from BIG Pharmacy Healthcare Sdn Bhd to acquire its entire 75% equity stake in Caring Pharmacy for a total cash consideration of RM637.5mil.
The deal excluded Caring’s loss-making Indonesia joint-venture operations that reported a net loss of RM1.5mil in the first quarter of 2023.
CGS-CIMB Research said the disposal was fair, given the current competitive pharmacy retail landscape and normalising margins.
“This is below 7-Eleven Malaysia’s five-year mean of 26.7 times and the 27 times price-to-earnings ratio multiple when it acquired Caring back in 2019,” noted CGS-CIMB Research in a report.
It was highlighted that 7-Eleven Malaysia had managed to double Caring’s net profit to RM43.4mil in FY22 compared with RM20.7mil in FY19, while growing its pharmacy retail stores in the country to 252 units at the end of the first quarter of 2023 from 129 units in 2019.
CGS-CIMB Research said the disposal of Caring would be earnings-accretive for 7-Eleven Malaysia and would add 3% to its FY24 core net profit forecast, after taking into account a potential post-tax cost savings of RM27mil.
“We assume that Caring would account for 30% and 25% of 7-Eleven Malaysia’s total FY24 revenue and core net profit respectively,” the research house said.
CGS-CIMB Research stated that the completion of the disposal would bolster 7-Eleven Malaysia’s balance sheet, turning it to a net cash position.
