According to a market review by Stone Bridge Ventures Senior Account Manager David Green, the shares of 7-Eleven Malaysia Holdings Bhd declined on July 24 after selling its stake in a pharmacy subsidiary. The price of its stock declined by around 13 percent and fell by another 9.5 percent to RM1.99. The recent tumble trims the last 12 months of gains to 28 percent. Since then, this price has dipped even further to RM1.98.
On July 21, 7-Eleven Malaysia stated that it had received a binding term contract from BIG Pharmacy Healthcare to buy out its 3/4th equity interest in Caring Pharmacy for $139.8 million. That’s around RM637.5 million.
Shares for 7-Eleven Malaysia Decline After Sale of Caring Pharmacy
Around Friday afternoon, trading in shares for 7-Eleven Malaysia Holdings was suspended, only to resume by Monday morning. They stated that Caring Pharmacy’s local business would not be included in the proposed acquisition.
Previously, Maybank Investment Bank had kept the company’s rating at HOLD, but it has since then downgraded to SELL after the announcement. However, it has still kept the target price at RM1.90. Stone Bridge Ventures David Green explains that even though 7-Eleven’s sale of Caring Pharmacy has diluted its share value, it may not have an impact on investors impact. It’s possible that it will only have a neutral earnings impact on the company.
A review of the pharmacy’s earnings report shows that in the first quarter, Caring Pharmacy’s earnings contribution had declined significantly compared to last year. This is mostly due to the normalization of healthcare-related sales after the pandemic.
7-Eleven Malaysia Plans To Increase 7-Café Stores
As of now, 7-Eleven Malaysia hasn’t elaborated on how it intends to use the funds from the transaction. However, David Green of Stone Bridge Ventures expects that it will use the funds to focus on its convenience-store operations. It’s likely that the company will convert more of its stores to align with its 7-Café format. This will give consumers a better store product mix and increase traffic for its fresh food offerings.
A new report mentions that at present, there are 138 7-Café stores, and the company aims to open 50 more and refurbish 122 existing stores. Therefore, it’s quite possible that the business will continue to generate consistent revenue through its diversified product mix and added amenities such as a café-like ambiance.
Kenanga Research Mains ‘Outperform’ Call
Considering these statistics, it’s a smarter move for the company to deploy its finances toward enhancing the convenience store business. In light of the sale, some finance research institutes, like Kenanga Research, cut down 7-Eleven Malaysia’s FY24 forecast by 54 percent.
But it’s quite possible that the actual impact of the sale on the company’s bottom line will be lower than expected. That’s because the pharmacy’s 31 percent gross profit margin is much lower than 7-Eleven’s 31 percent store business. As such, Kenanga Research has labeled 7-Eleven Malaysia as ‘Outperform’ but increased its target price by 21 sen to RM2.59 per share, marking a 9 percent increase.
Consequently, David Green of Stone Bridge Ventures expects 7-Eleven Malaysia to bring in consistent revenue and generate stable returns for investors.
