KUALA LUMPUR: Malaysian Rating Corp Bhd (MARC) has assigned a preliminary rating of AA- to 7-Eleven Malaysia Holdings Bhd’s proposed RM600mil medium-term notes (MTN) programme with a “stable” outlook.
This reflects the group’s strong and established market position in the Malaysian convenience store segment.
In a statement, the ratings firm said proceeds from the initial issuances under the proposed MTN are expected to be used to refinance existing borrowings to a longer tenure.
MARC noted that 7-Eleven has gained from a long operating track record with a wide store network that has supported stable earnings generation.
“Moderating the rating are the prevailing competition within the convenience store segment, particularly in the urban areas, and high operating cost inherent in the convenience store business model that has weighed on operating margins, ” it said.
7-Eleven Holdings is a non-operating investment holding company with two major subsidiaries: 7-Eleven Malaysia Sdn Bhd – which operates the convenience store chain under the 7-Eleven brand – and Caring Pharmacy Group Bhd – which operates the retail pharmacy chain under the Caring brand.
7-Eleven has about 2,400 stores nationwide, accounting for about 64.9% of the total number of convenience stores held by major operators.
MARC expects the convenience chain to continue its rapid pace of expansion with a target of 100 to 150 new store openings annually, for which it has earmarked a capex of RM70mil.
The expansion has provided an extensive geographical reach throughout the country, further entrenching its position.
Operating under a long-term exclusive licence from the US-based 7-Eleven Inc, its licensing risk is mitigated by its lengthy operating track record.
However, MARC highlighted that its same-store sales growth has weakened, partly due to the increased competition in the convenience store segment.
This is being addressed by increasing product and service differentiation in its stores and by refurbishing up to 450 others annually and shuttering underperforming stores.
These efforts have resulted in improved operating margins to above 4% since 2019.
Meanwhile, its Caring Pharmacy, acquired in June 2020, is expected to contribute about 31.3% a year to group operating profit over the next three years.
Caring Pharmacy has 144 stores as at end-2020, growing organically by utilising internal funds for store expansions, as reflected by a low leverage level of about 0.04 times at end-2020, MARC said.
Capex has ranged between RM4.1mil and RM8.3mil between 2017 and 2020 and is expected to be maintained within this range in the medium term.