7-Eleven to benefit from new collaboration with Brahims

Profitable: For the financial year ended Dec 31, 2014, 7-Eleven Malaysia made a net profit of RM63.1mil on the back of RM1.89bil in revenue.

KUALA LUMPUR: 7-Eleven Malaysia Holdings Bhd stands to benefit in the long term with its collaboration and cooperation with Brahims SATS Food Services Sdn Bhd (BSFS) in the food chain supply.

“Collaboration with a sizeable food supplier could enhance its food supply chain. In the longer term, earnings enhancement would depend on the demand for its potential food offerings.

“We  maintain  our  earnings forecasts, hold call and target price of RM1.38 (FY17 price-earnings ratio of 25 times),” Maybank Investment Bank Research said.

The convenience store chain’s wholly-owned unit, 7-Eleven Malaysia Sdn Bhd, has inked a memorandum of understanding (MoU) with Brahims SATS Food Services Sdn Bhd (BSFS) to collaborate and cooperate in the food chain supply.

Under the MoU, BSFS would plan, develop and create menu specifications and products to be marketed through 7-Elevens nation-wide chain of convenience stores.

7-Eleven would also provide a centralised distribution centre for BSFS to deliver all products manufactured by the company and to arrange for product delivery.

Maybank said the terms of agreements were not disclosed but 7-Eleven’s net cash position of RM120mil as at end-2015 provided it with an opportunity to invest in a new  combined distribution centre (CDC) should the project really require a new one.

“Recall that 7-Eleven had in November 2015 re-allocated its unutilised balance of RM41mil proceeds earmarked for its new CDC to working  capital, given the availability of third party capacity around. As a recap, the new CDC had a planned usable warehouse space of 124,000 sq ft ,” it added.

The research house said it understood that some convenience store players domestically had been facing some supply chain issues mainly due to dependence on multiple fresh food suppliers and scale and reach of the existing food suppliers.

“Therefore, collaboration with a sizeable party could benefit 7-Eleven in the longer term in terms of cost efficiencies and consistency of product quality or choices while not having to move away from its core competence of managing convenience stores. To note that fresh food and services as a percentage of merchandise sales has been fairly stable, at about 10%,” it added.