7-Eleven 'sell', Magnum 'buy', GD Express 'neutral', Bioalpha 'add'

  • Business
  • Tuesday, 11 Sep 2018

7-Eleven Malaysia

By Maybank IB Research

Rating: Sell

Target Price: RM1.12

While the improvement in consumer sentiment bodes well for SEM’s sales outlook, there are headwinds ahead, said Maybank IB.

“Minimum wage will raise overheads while the decision to maintain prices post sales tax implementation may dampen margins. Our financial year 2019/2020 earnings are cut by 10% each and our target price is lowered to RM1.12 from RM1.24.

“We maintain our sell call,” it said.

The research house said that with the implementation of sales tax from Sept 1, 2019, it understands that some suppliers have proposed to increase prices by an average of 5%-6%.

It said that 7-Eleven, leveraging on its buyer power, intends to maintain prices at the retail level in the near term.

“This is however with the exception of cigarettes (36% of sales in the first half) whereby cost increases will be passed on to the consumers. Elsewhere, 7-Eleven shared that an estimated 80%-90% of its staff force (13,000-14,000) are on the current minimum wage,” the research house said.

“Assuming an average RM50 per month increase in minimum wage, personnel expenses could rise by about RM7mil per year (5% of FY18 earnings before interest taxes, depreciation and amortisation - EBITDA). There has been more focus on refurbishments as of the first half. 7-Eleven has refurbished 99 stores in the first half and is on track to meet its target of 150,” it added.

On store openings however, Maybank IB notes that 7-Eleven has turned more cautious. Having only opened 16 stores in the first half, it has since revised its targeted store openings to 100 from 200 in FY18.


By UOB Kay Hian Research

Rating: Buy

Target Price: RM2.26

After a quarter of dividend suspension in the first quarter of 2017 due to the shocking notice of assessment for RM476mil income tax issues from the Inland Revenue Board (IRB), Magnum has resumed its quarterly payout.

Dividend payout has fully recovered from 77% in 2017 to 97% in the first half of 2018, similar to its historical practice, UOBKH said in its report.

“This signals that payout would hover at around 100% moving forward, until there is a need for capital for the IRB court case settlement.

“We remain optimistic that Magnum would need to pay a significantly smaller penalty after a long-drawn-out court case,” it said.

UOBKH said a key catalyst for Magnum would be the monetisation of its 6.3% stake in U-Mobile, precipitated by either a trade sale or an initial public offering (IPO) in 2019, which could fetch an estimated value of RM400mil (book value: RM270mil), representing 14% of its market capitalisation.

“In a hypothetical IPO scenario, it is envisioned that Magnum may dish out its U-Mobile shares in dividend in specie to its shareholders.

“We understand that U-Mobile has turned EBITDA positive and has about a 10% market share of the country’s mobile subscriptions,” it said.

It maintained its buy call on Magnum with unchanged target price of RM2.26, which implies a 15.1x/14.3x 2018/2019 price to earnings ratio (PER) and yields of 5.6%/6% for 2018/2019 (based on 85% payout assumptions).

UOBKH said Magnum has attractive yields with potential upside.

“Magnum’s yields are decent at 6.5%-6.9% in 2018-19 despite our conservative dividend payout assumption of 85%,” the research house said.

Yields would be at 6.9%-8.1% should payout ratio rise to 90%-100%.


By MIDF Research

Rating: Neutral

Target Price: 44 sen

GDEX’s subscription of convertible bonds worth 30 billion rupiah (or approximately RM10.4mil) issued by SAP Express will be redeemed upon the listing of SAP Express in October 2018, MIDF Research said.

As per the preliminary prospectus, SAP Express plans to utilise 61.5% of the IPO proceeds which equals to IDR67.2bil (nominal value: 30 billion rupiah, redemption premium: 37.2billion rupiah) to redeem the five-year convertible bonds subscribed by the company in November 2016.

“While this indicates that GDEX will not be able to convert the bond into shares of SAP Express, management guided that both parties will work out another form of collaboration.

“Aside from Indonesia, GDEX is also looking at other Asean countries to expand such as Vietnam and Cambodia,” it said.

GDEX has also shifted its warehouse operations from Hub 2 in PJ to Mapletree Logistics Hub in Shah Alam.

The Hub 2 in PJ is earmarked to be a local transhipment hub for bulky shipments for the Singles Day and 12.12 Online Revolution sales.

The research house said that this would include enhancing the automation systems at Hub 2 by early FY20 with an aim to reach average sorting capacity to above 200,000 parcels per day.

“Meanwhile, the expansion works at the Hub 1 headquarters in PJ will be completed in November 2018, ramping up the average sorting capacity to 120,000-150,000 parcels,” it said.



Rating: Add

Target price: 44 sen

Biolapha held its second quarter FY18 results briefing last Thursday evening, with some 32 analysts and fund managers in attendance at the briefing where there were no surprises.

CGSCIMB said management’s presentation focused on the growing domestic own design manufacturing (ODM) and pharmaceutical business, which contributed 71% of the group’s revenue in the first half of the year.

“Domestic manufacturing revenue was up 35% year-on-year (y-o-y) at RM19.1mil in the first half mainly due to strong domestic demand from existing/new clients.

“Domestic pharmacy revenue was up 70% at RM12.9mil mainly due to stronger house brand sales. The company targets to have 25 pharmacies in total by year-end, and plans to add a further 15 outlets in 2019,” it said.

CGSCIMB said its herbal plantations posted a loss of RM0.6mil as they have yet to mature.

“In 2018, the Johor Desaru herbal park is expected to break even, producing around 500 tonnes of herbs in 2018. For 2019 and 2020, the company is targeting to produce 1,000 tonnes and 2,000 tonnes of herbs respectively.

“On average, we understand that one tonne of herbs can generate between RM2-5 per kg in revenue,” it said.

It noted that Bioalpha also plans to build a new factory in Pasir Raja (PR), Terengganu, to process herbs harvested at the PR park for commercial production starting the first quarter.

“In addition, the company is expanding the manufacturing capacity at its Bangi factory.

“Current factory utilisation rate is 80% and factory expansion will raise production capacity by 50%.

“While getting approvals for functional foods for the Indonesia factory can be relatively quick, the approvals for health supplements can take a longer time as it would involve local authorities undertaking the necessary audits at the factory,” it said.

Bioalpha is expecting full approval for the manufacturing of the health supplements division by year-end, the research house said.

CGSCIMB said it has maintained its earnings per share forecasts and target price based on an unchanged forecasted 2019 20 times PER, a 20% discount to its forecasted 2019 25 times PER for the consumer sector target PER.

“The stock remains an add.

“Potential catalysts include continued strong domestic revenue growth, while downside risks include continued weak export revenues,” it said.

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