Caring Pharmacy Group Bhd (+ve)

CARING (Fundamental: N/A, Valuation: N/A) was picked by our momentum algorithm for the third consecutive day, closing down 1.2% to RM1.60 last Friday.

The four-day rally in its share price — which resulted in a 50.0% gain — was halted by an unusual market activity query by Bursa Malaysia. The company responded that it was unaware of any corporate development that could have led to the share price hike.

Listed in November 2013, Caring is primarily involved in the retail of pharmaceutical, healthcare and personal care products. It is the only locally listed pure retail pharmacy chain with 104 community pharmacies throughout Peninsular Malaysia.

For the full year FY2015, revenue rose 8.4% to RM366.7 million, boosted by nine new outlets opened during the financial year. Net profit, however, declined 14.7% to RM12.9 million, due mainly to higher operating expenses, start-up costs for new outlets and stiff price competition. Nevertheless, the company’s balance sheet remained strong with net cash of RM74.9 million or 25.9% of its market capitalisation.

Caring also proposed a final dividend of 2 sen for FY2015, down from 3 sen in FY2014, giving a net yield of 1.2%. It has a minimum 30% dividend payout policy.

Caring still has unutilised initial public offering (IPO) proceeds of RM15.1 million, out of the total IPO proceed of RM43.75 million. As at end-May 2015, the company has utilised RM8.89 million on 20 new outlets. It plans to spend another RM2.6 million on five new outlets in 1HFY2016 while the remaining RM12.5 million is intended for working capital.

Near-term outlook appears challenging with dampened consumer sentiment and higher cost pressures. While Caring could benefit from the separation of prescribing and dispensing drugs, it remains to be seen whether the policy can be implemented in the next three to five years.

The stock trades at a high trailing 12-month P/E of 27.4 times and 2.94 times book.

This article first appeared in digitaledge Daily, on September 7, 2015.