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Thursday, June 26, 2014

CIMB Research initiates coverage on 7-Eleven Malaysia


KUALA LUMPUR: CIMB Equities Research has started coverage on 7-Eleven Malaysia (7-Eleven) with a Hold call with a target price of RM1.85, which is an upside of 5.3% over its last traded price of RM1.76.
It said on Thursday its target price was based on 26.2 times CY15 price-to-earnings (P/E), at 20% premium over its peers average due to its stronger earnings growth and returns on equity and the surprisingly strong demand for the stock since listing.
"Our channel checks revealed that there could be 30,000 to 40,000 traditional convenience store which 7-Eleven could displace in Malaysia. This would provide further growth if 7-Eleven resumes its franchising programme," it said.
To recap, 7-Eleven is the country's largest convenience store operator, with 82% market share of the standalone convenience store segment and 38% market share of the overall convenience store segment. The master franchise rights granted by 7-Eleven USA gives 7-Eleven the right to operate and sub-franchise the 7-Eleven business in Malaysia and Brunei.
"As at April 10, 2014, the company had 1,583 stores in Malaysia. It plans to add 600 stores in FY14-16. Apart from the support that it receives from 7-Eleven USA, the company has a strong alliance with the Berjaya Group, which gives it a competitive edge in terms of costing and business opportunities.
"We anticipate that 7-Eleven will achieve three-year net profit CAGR of 29% on the back of 3-4% same store sales growth, driven by new store openings and greater operating efficiency. A potential 25% jump in commission income would also boost FY14 bottomline," it said.

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