SEM (5250) : 7-Eleven Malaysia Holdings Berhad - More to come
Target RM1.78 (Stock Rating: HOLD)
In its analyst briefing today, 7-Eleven highlighted that it is now targeting to add on a net basis 190 stores by year-end instead of 200 stores. It is still evaluating its plan to build its own distribution centre. Other plans set during the IPO are generally on target. We maintain our RM1.78 target price, which is based on 23.6x CY16 P/E (20% premium over peer average). The stock remains a Hold as we believe that its strong performance has been priced in. We prefer Berjaya Food which offers much stronger earnings growth at a more attractive valuation.
What Happened
We, along with some 20 analysts, attended 7-Eleven’s 9M14 results briefing today. The briefing was chaired by Deputy CEO Gary Brown who was flanked by Managing Director Ho Meng and Chairman Lena Tan. It started with a presentation by the deputy CEO who talked about the drivers of the stronger 9M14 results and the group’s growth strategies. Key takeaways were 1) 7-Eleven has scaled back its 2014 net store addition target from 200 stores to 190 stores but is on target to achieve its goal to refurbish 200 stores, 2) more in-store services are in the pipeline, 3) more A&P activities to drive earnings are planned, and 4) the company is still evaluating its plan to build its own combined distribution centre (CDC); it is monitoring product demand and the change of product mix more closely first.
What We Think
There were no major surprises. Although its 9M14 results came in below our previous forecast, 7-Eleven’s performance since IPO was nonetheless encouraging, with SSS growth at more than double its traditional run-rate and gross profit margin up by 0.2% pts YTD. During the briefing, we gathered that one of the reasons for its results shortfall was the higher sales volume for cigarettes in 3Q which diluted its margin. The company hopes to increase its gross profit margin by 0.5% pts annually until it hits the 30-31% resistance level. The targeted margin expansion is in line with our FY15 forecast but higher than our FY16 forecast. While we did not expect 7-Eleven to achieve its original target of 200 net store addition, our assumption of 170 stores is more conservative than the company’s revised figure of 190. If we were to factor in its revised target, our FY14 EPS will be raised by 1.5%.
What You Should Do
Stay invested. Although we like 7-Eleven for its strong earnings growth, we believe that this has been factored into its share price.
Source: CIMB Daybreak - 26 November 2014
Target RM1.78 (Stock Rating: HOLD)
In its analyst briefing today, 7-Eleven highlighted that it is now targeting to add on a net basis 190 stores by year-end instead of 200 stores. It is still evaluating its plan to build its own distribution centre. Other plans set during the IPO are generally on target. We maintain our RM1.78 target price, which is based on 23.6x CY16 P/E (20% premium over peer average). The stock remains a Hold as we believe that its strong performance has been priced in. We prefer Berjaya Food which offers much stronger earnings growth at a more attractive valuation.
What Happened
We, along with some 20 analysts, attended 7-Eleven’s 9M14 results briefing today. The briefing was chaired by Deputy CEO Gary Brown who was flanked by Managing Director Ho Meng and Chairman Lena Tan. It started with a presentation by the deputy CEO who talked about the drivers of the stronger 9M14 results and the group’s growth strategies. Key takeaways were 1) 7-Eleven has scaled back its 2014 net store addition target from 200 stores to 190 stores but is on target to achieve its goal to refurbish 200 stores, 2) more in-store services are in the pipeline, 3) more A&P activities to drive earnings are planned, and 4) the company is still evaluating its plan to build its own combined distribution centre (CDC); it is monitoring product demand and the change of product mix more closely first.
What We Think
There were no major surprises. Although its 9M14 results came in below our previous forecast, 7-Eleven’s performance since IPO was nonetheless encouraging, with SSS growth at more than double its traditional run-rate and gross profit margin up by 0.2% pts YTD. During the briefing, we gathered that one of the reasons for its results shortfall was the higher sales volume for cigarettes in 3Q which diluted its margin. The company hopes to increase its gross profit margin by 0.5% pts annually until it hits the 30-31% resistance level. The targeted margin expansion is in line with our FY15 forecast but higher than our FY16 forecast. While we did not expect 7-Eleven to achieve its original target of 200 net store addition, our assumption of 170 stores is more conservative than the company’s revised figure of 190. If we were to factor in its revised target, our FY14 EPS will be raised by 1.5%.
What You Should Do
Stay invested. Although we like 7-Eleven for its strong earnings growth, we believe that this has been factored into its share price.
Source: CIMB Daybreak - 26 November 2014
