KUALA LUMPUR (July 20): The potential divestment of Caring Pharmacy Group Bhd could raise 7-Eleven Malaysia Holdings Bhd’s earnings per share (EPS) by 33% to 36% in FY22-FY23, according to CGS-CIMB Research.
It a note on Tuesday (July 19), the research house said this was assuming the group receives cash proceeds of RM1.3 billion and pares down its debt entirely (interest cost savings of RM43 million per annum).
CGS-CIMB also assumed interest income of RM17 million per annum for the group, completion of this deal by the fourth quarter ended Dec 31, 2022 (4Q22) and taking into account Caring's FY23/24 forecast net profit contributions of RM30.7 million/RM32 million.
“We are positive on the news if it materialises as it allows SEM to focus on growing its core convenience store business and strengthen its financial profile.
7-Eleven’s largest shareholder, Berjaya Corp Bhd founder Tan Sri Vincent Tan, controls 24.547% direct stake and 20.332% indirect stake in the group.
Bloomberg reported on Monday (July 18) that the convenience store operator is working with an adviser on the potential divestment of Caring for about US$400 million (about RM1.78 billion). The deal has attracted interest from some Japanese parties, said Bloomberg quoting sources.
“This values it at 56.7 times P/E (average net profit in FY22-24F). We find the valuation rich as SEM (7-Eleven) acquired Caring at an implied P/E multiple of circa 27 times in 2020, just two years ago, albeit Caring’s sales and net profit have doubled since then,” said CGS-CIMB.
Caring was previously listed on the Bursa Malaysia Main Market until its delisting on May 8, 2020 when 7-Eleven took over.
Since then, the number of Caring outlets has increased from 130 to 199 as of March 31, 2022 through organic store expansion and the acquisition of a 67% stake in The Pill House Pharmacy (Georgetown Pharmacy) and a 60% stake in Wellings Pharmacy in 2Q21.
CGS-CIMB maintained its "hold" call on 7-Eleven and target price of RM1.48.
Despite rising competition in the convenience store space, the research firm believes that its share price should be supported by its dominant position in the convenience store and pharmaceutical space in terms of store count (a total of 2,437 7-Eleven stores and 199 pharmacies as of March 31, 2022).
7-Eleven shares were last traded at RM1.59, giving it a market capitalisation of RM1.96 billion.