7-Eleven Malaysia Holdings Bhd
(Oct 28, RM1.65)
We initiate coverage on 7-Eleven Malaysia with “buy” and a target price (TP) of RM2, representing a 19% potential upside return. Our TP is based on a 28 times financial year 2015 forecast (FY15F) price-to-earnings ratio (PER) multiple which is a 17% premium to its regionally listed peers’ average PER of 24 times.

We are positive about its well-planned growth strategy and promising outlook for the convenience store industry in Malaysia and estimate a three-year earnings compound annual growth rate (CAGR) of 29.1% over 2013 to 2016F.

7-Eleven Malaysia’s strong presence within the market has earned the company brand recognition and reputation. In our view the convenience store industry in Malaysia is the least penetrated sector in the region, and this should complement 7-Eleven Malaysia’s expansion plan. We believe that the company’s revenue should improve in tandem with its network expansion plan — which is a net increase of 600 stores over the next three years. The company’s store renovation exercise may continue to improve customer experience and drive store traffic. We expect the company’s revenue to expand by a three-year CAGR of 15.4% over 2013 to 2016F.

We are upbeat on 7-Eleven Malaysia’s growth prospects and forecast a three-year earnings CAGR of 29.1% for 2013 to 2016F, driven by its network store expansion, consistent same-store sales growth and better commission income generated from its in-store services.

Key risks include a potential slowdown in consumer sentiment. The company’s reliance on three suppliers amounts to 40% of total purchases. — RHB Research Institute, Oct 28

This article first appeared in The Edge Financial Daily, on October 29, 2014.