PETALING JAYA: CGS-CIMB Research is positive on news of the potential divestment of Caring Pharmacy Group Bhd by 7-Eleven Malaysia Holdings Bhd.
“If this materialises, it will allow 7-Eleven Malaysia to focus on growing its core convenience store business and strengthen its financial profile,” the research house said in its note to clients yesterday.
According to an article by a local business portal, 7-Eleven Malaysia is said to be looking at a potential divestment of its pharmaceutical arm, Caring after attracting interest from some Japanese parties, potentially valuing the entire pharmacy group at RM1.8bil.
Assuming the potential divestment is only in exchange for cash, CGS-CIMB Research said: “We believe that 7-Eleven Malaysia could receive cash proceeds worth RM1.3bil based on its 75% stake in Caring.
“It also stand to record a potential gain on disposal of RM1bil based on cost of investment of RM292mil, when 7-Eleven Malaysia took over Caring in 2020.”
“However, at this juncture, we understand that 7-Eleven has neither confirmed or denied the said news article.”
The research house also pointed out that the indicative offer of RM1.8bil values Caring at 56.7 times price-to-earnings ratio (P/E) estimated average net profit in financial year (FY) 2022 to FY24.
“We find the valuation rich as 7-Eleven Malaysia acquired Caring at an implied P/E multiple of 27 times in 2020, just two years ago, albeit Caring’s sales and net profit have doubled since then,” it added.
Caring was previously listed on the Main Market of Bursa Malaysia until its delisting on May 8, 2020 when 7-Eleven took over the company.
Since then, the number of Caring outlets has increased from 130 to 199 as of March 31, 2022 through organic store expansion and the acquisition of a 67% stake in The Pill House Pharmacy (Georgetown Pharmacy) and a 60% stake in Wellings Pharmacy in the second quarter of 2021.
The group has also ventured into the Indonesian pharmacy market via a joint venture. As of March 31, 2021, Caring’s customer loyalty programme has over one million validated members and 531,000 mobile app users, which is a testament to its strong customer base and operating scale.
The research house said its 7-Eleven Malaysia estimated FY22-FY24 earnings per share forecasts and “hold” call remained intact.
“Our target price on the stock remains at RM1.48,” it added.
Despite rising competition in the convenience store (CVS) space, the research house believes that 7-Eleven Malaysia’s share price should be supported by its dominant position in the CVS and pharmaceutical space in terms of store count.
As of March 31 this year, it has 2,437 stores and 199 pharmacies.