PETALING JAYA: 7-Eleven Malaysia Holdings Bhd’s move to extend its offerings and carry products by the British brand Boots in its stores is seen as a step in the right direction to attract a wider range of shoppers.
This could potentially help increase the basket value moving forward.
7-Eleven is also expanding into suburban areas to leverage on increased interest in the neighbourhood store concept, as shoppers begin shying away from crowded malls, RHB Research said.
The research house said that at present, the pilot 7-Eleven stores that carry an extension of offerings to include daily commodities such as cooking oil, condiments, and frozen foods, are located in densely populated neighbourhoods.
These are in Sri Sentosa, Setia Gemilang, Putra Mahkota, Bukit Raja and Seri Kembangan.
In the last financial year 2020 (FY20), the research house said there was only a net increase of two stores for 7-Eleven (92 openings, 90 closures) from 2,411 stores in FY19, with a target of opening 100 stores in FY21.
It said FY20’s ticket size has increased by 19% since FY19.
7-Eleven’s wide network, paired with its innovative product mix, should lead to an improving same store sales growth into FY22, it added.
It said the cost synergies arising from the recent Caring acquisition (in terms of logistics, procurement, headquarters function, etc) is an added advantage, in its view, to support margins moving forward.
RHB Research believes that the current price levels are attractive, and foresees the potential of valuations being re-rated back to mean, or above mean, when investors rotate into cyclical sectors more meaningfully.
It said essentially, the recovery route was still intact – despite the recent resurgence of Covid-19 cases – with the vaccination progress underway and the re-imposition of movement restrictions.
“That said, we roll forward our valuations to FY22, as we believe investors should look beyond near-term earnings risks arising from the recent spike in infection rates, and focus on the eventual cyclical recovery, ’’ RHB Research said.
It has maintained its “buy’’ call on the counter but with a slight increase in target price from RM1.60 a share to RM1.80.
There are no changes made to its earlier earnings forecast but it cited downside risks include intense competition and a sharp rise in operating costs.