EVEN amid a subdued footfall, 7-Eleven Malaysia Holdings Bhd can expect to enjoy a more palpable recovery in foot traffic and earnings in FY2021.
After all, the consumption pattern in a post pandemic environment could evolve with consumers more inclined to spend in convenience stores that are in close proximity to offices and residential areas while avoiding crowded shopping malls, according to RHB Research.
“This should benefit 7-Eleven considering its well-diversified presence across Malaysia,” wrote analyst Soong Wei Siang in a results review. “Besides the volume recovery, FY2021 earnings growth of 35% will also be driven by higher operating efficiency and cost synergies from the Caring Pharmacy consolidation.”
According to RHB Research, 7-Eleven’s 9M FY2020’s core net profit of RM35 mil (-18% year-on-year) met only 65% of its forecast.
The negative deviation can be attributed to a milder-than-expected recovery in 3Q FY2020, prompting the research house to trim its FY2020-2022 forecasts by 6-10%.
All-in, RHB Research reiterated its “buy” rating on 7-11 with a lower target price of RM1.60 (from RM1.67 previously) given the company’s 9M FY2020 results disappointed as its 3Q FY2020’s recovery was not as strong as the research house had expected.
“Near-term footfall should remain subdued on the back of the high number of new COVID-19 cases and different stages of the movement control order in several states,” justified the research house.
“Beyond this, we foresee a more palpable foot traffic recovery in FY2021. In addition, business rationalisation and further synergy from Caring Pharmacy’s consolidation should propel a 35% earnings growth in FY2021.”
Likewise, CGS-CIMB Research also lowered sales expectations for 7-Eleven’s convenience store operations due to potentially weak footfall by slashing the company’s FY2020-2022F earnings per share forecasts by 1.3%-7.3%
Nevertheless, the research house maintained its “add” call on 7-Eleven with an unchanged target price of RM1.70.
“We remain optimistic on 7-Eleven’s efforts to improve its operating efficiencies and the profitability of its sales product mix,” opined analyst Syazwan Aiman Sobri.
“Re-rating catalysts include stronger SSSG (same-store sales growth) while downside risks are weaker-than-expected footfall and/or poor cost control efforts.”
At 12.30pm, 7-Eleven was unchanged at RM1.31 with 526,200 shares traded, thus valuing the company at RM1.62 bil. – Nov 26, 2020
