SEM (5250) : 7-Eleven Malaysia Holdings Berhad - Growing but below expectations
Target RM1.78 (Stock Rating: HOLD)
7-Eleven’s 9MFY14 results came in below our forecast (68% of FY14 forecast) and consensus (70%). 9M revenue increased by 12.9% due to a wider network and stronger SSS growth, while net profit increased largely due to the higher other operating income. We cut our FY14-16 earnings forecasts and target price, which is based on a lower target P/E of 23.6x CY16 (CY15 previously, 20% premium over its peers’ average) or in line with the lower average peer P/E. Despite the cut its earnings, its growth remains above the sector’s average. We maintain our Hold call. No dividend was declared. For exposure to the local consumer sector, we prefer Berjaya Food that trades at a more attractive valuation but comes with much stronger earnings growth.
9MFY14 results stronger yoy
7-Eleven’s 9MFY14 revenue increased by 12.9% while net profit increased by 34.3% yoy. The stronger revenue was driven by same-store-sales growth of 4.5% and growth in the number of stores from 1,557 in 2013 to 1,677 in 9MFY14, still 80 stores away from its target of 200 new stores/year. While gross profit improved 0.5% pt yoy due to higher selling prices, higher economies of scale and better product mix, EBITDA margin improved more at 0.8% pt yoy, driven by the higher operating income (excluding interest income). This offset the higher selling and distribution expenses due to expansion and lower net interest income, resulting in higher net profit yoy. In terms of 3QFY14 vs. 3QFY13, revenue increased by 11.7% yoy due to the opening of new stores, better product mix and consumer promotion activity. Net profit jumped 109% yoy, mainly due to the (1) higher other operating income, (2) substantially lower administrative and other operating expenses (-32% yoy) as the group incurred higher A&P cost for its “Hello Kitty” promotional campaign in Aug 2013, and (3) much lower effective tax rate.
EPS growth and margins expansion slower than expected
Although 7-Eleven’s 9MFY14 results are better yoy, the growth is slower than expected, mainly due to the lower-than-expected commission income, other operating income and margin expansion. We also think that 7-Eleven may not be able to achieve its new openings target. In view of its weaker-than-expected 9M results and the slower consumer spending, we think that it is unlikely to achieve our previous forecast of strong 3-year EPS CAGR of 29%.
Source: CIMB Daybreak - 24 November 2014
Target RM1.78 (Stock Rating: HOLD)
7-Eleven’s 9MFY14 results came in below our forecast (68% of FY14 forecast) and consensus (70%). 9M revenue increased by 12.9% due to a wider network and stronger SSS growth, while net profit increased largely due to the higher other operating income. We cut our FY14-16 earnings forecasts and target price, which is based on a lower target P/E of 23.6x CY16 (CY15 previously, 20% premium over its peers’ average) or in line with the lower average peer P/E. Despite the cut its earnings, its growth remains above the sector’s average. We maintain our Hold call. No dividend was declared. For exposure to the local consumer sector, we prefer Berjaya Food that trades at a more attractive valuation but comes with much stronger earnings growth.
9MFY14 results stronger yoy
7-Eleven’s 9MFY14 revenue increased by 12.9% while net profit increased by 34.3% yoy. The stronger revenue was driven by same-store-sales growth of 4.5% and growth in the number of stores from 1,557 in 2013 to 1,677 in 9MFY14, still 80 stores away from its target of 200 new stores/year. While gross profit improved 0.5% pt yoy due to higher selling prices, higher economies of scale and better product mix, EBITDA margin improved more at 0.8% pt yoy, driven by the higher operating income (excluding interest income). This offset the higher selling and distribution expenses due to expansion and lower net interest income, resulting in higher net profit yoy. In terms of 3QFY14 vs. 3QFY13, revenue increased by 11.7% yoy due to the opening of new stores, better product mix and consumer promotion activity. Net profit jumped 109% yoy, mainly due to the (1) higher other operating income, (2) substantially lower administrative and other operating expenses (-32% yoy) as the group incurred higher A&P cost for its “Hello Kitty” promotional campaign in Aug 2013, and (3) much lower effective tax rate.
EPS growth and margins expansion slower than expected
Although 7-Eleven’s 9MFY14 results are better yoy, the growth is slower than expected, mainly due to the lower-than-expected commission income, other operating income and margin expansion. We also think that 7-Eleven may not be able to achieve its new openings target. In view of its weaker-than-expected 9M results and the slower consumer spending, we think that it is unlikely to achieve our previous forecast of strong 3-year EPS CAGR of 29%.
Source: CIMB Daybreak - 24 November 2014
