Expansion plans to boost Caring earnings

CARING Pharmacy Bhd seems unfazed by the increasingly challenging operating environment for its business.

In the face of a highly competitive market, the local pharmaceutical retail chain, which has reportedly attracted interest from a South Korean private equity firm, is upping its game by opening more outlets in strategic locations in Malaysia.

Caring Pharmacy’s expansion strategy is now focused on towns outside the Klang Valley region, with plans to open around 10 to 12 new outlets across major towns in Peninsular Malaysia, as well as certain parts of Sabah and Sarawak.

The company has said it is opening only in high-potential areas, while at the same time, closing down underperforming outlets, as it channels its focus on profit-maxising locations.

Caring Pharmacy operates a total of 113 community pharmacies in the country as of Nov 30, 2017, compared with 107 outlets as of its financial year (FY) ended May 31, 2017.

During the six months to November last year, the group closed down one outlet, and established seven new ones.

With a strong net cash position, a broker notes, Caring Pharmacy appears well placed to finance and grow its retail chain across the country to boost its earnings growth.

“We don’t see funding being a major issue for the company; the company has sufficient financial muscle to internally fund its capital expenditure,” he says.

“And we think Caring Pharmacy’s active approach in maximising the locations of its stores will help the group achieve long-term sustainable growth,” he adds.

Meanwhile, a growing economy, a strengthening ringgit and improving consumer sentiment bodes well for Caring Pharmacy.

An analyst notes, while prospects seem quite promising for the consumer industry as a whole over the medium term, the company has to contend with tough competition from bigger retail chains such as Guardian and Watsons as well as up and coming ones such as Big Pharmacy.

“This is a highly competitive market, which could potentially affect the profit margins of all the players over time,” the analyst say.

Besides physical outlets, Caring Pharmacy also operates an online store to tap on the rising trend of online shopping. But competition in the online marketplaces is also tough, resulting in price wars to boost sales.

It is understood that the group’s online sales have yet to pick up significantly, contributing an average of only 1% to the group’s revenue.

Earnings jump

On a positive note, Caring Pharmacy saw its net profit in the second quarter ended Nov 30, 2017, jump on higher revenue and improved margins.

In its filing with Bursa Malaysia over the week, Caring Pharmacy said its net rose about 55% to RM4.27mil from RM2.76mil in the corresponding quarter a year earlier.

Consequently, the group’s earnings per share (EPS) rose to 1.96 sen from 1.27 sen previously.

During the quarter in review, Caring Pharmacy registered an increase of about 8% in revenue to RM123.45mil from RM113.86mil in the previous corresponding period. The group attributed its revenue growth to higher sales generated from existing outlets due to its aggressive and extensive promotional campaign.

Caring Pharmacy ended the quarter with higher cash and cash equivalents of RM107.62mil and lower total borrowings of RM8.83mil, compared with RM75.91mil and RM9.96mil, respectively, a year ago.

For the six months to November 2017, the group generated RM18.68mil in cash from operations, compared with RM9.85mil a year ago. Caring Pharmacy, which has a dividend policy of paying out at least 30% of its earnings, recently declared a dividend of three sen per share for its shareholders for FY2017.

Meanwhile, despite the broad improvement in its financial results, Caring Pharmacy’s shares have come under some selling pressure over the week.

The counter fell five sen to close at RM1.80 yesterday, down from its multi-year high of RM2.17 on Dec 28, 2017.

“Investors are taking profit, while awaiting for fresh leads,” a broker says.

At current price, Caring Pharmacy’s shares are trading at 23 times its earnings, which is pretty in line with the industry average.

The counter had a good run in 2017, registering a total gain of 63%.

The rally is likely due in part to news about a potential entry of a South Korean private equity firm in Caring Pharmacy.

According to a report by StarBiz Premium on Jan 2, the South Korean firm was looking to take up a substantial block of shares in the retail chain founded by five pharmacy graduates from Universiti Sains Malaysia in 1994.

Citing industry sources, Caring Pharmacy’s growing presence in the most populated areas in Malaysia and principal rights to distribute a range of pharmaceutical and personalised healthcare products had made it an attractive target for sophisticated investors.

“If the South Korean firm takes up a substantial stake in Caring Pharmarcy, it will lend credence to its ability to attract shareholders with a medium to long-term approach to the company,” the source says.

The major shareholder of Caring Pharmacy is Motivasi Optima Sdn Bhd that owns 50.35% equity interest in the pharmacy chain.

The shareholders of Motivasi Optima are Chan Yew Siang, Soo Chan Chiew, Tan Lee Boon and Ang Khoon Lim.

The second largest shareholder is Permodalan Nasional Bhd, with 12.76% stake. Berjaya Group’s Tan Sri Vincent Tan used to be a substantial shareholder through Jitumaju Sdn Bhd.

However, Jitumaju ceased to be a substantial shareholder in February this year.


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