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Wednesday, 1 March 2017

(The Edge) 7-Eleven’s first mom-and-pop turned franchised store by March

7-Eleven Malaysia Holdings Bhd
(Feb 28, RM1.46)
Maintain reduce with a lower target price (TP) RM1.15:
7-Eleven Malaysia Holdings Bhd’s fourth quarter of 2016 (4QFY16) turnover rose 4.8% year-on-year (y-o-y) to RM523.6 million while its core net profit decreased 31.7% y-o-y to RM9.5 million, bringing its cumulative core net profit to RM52.2 million (-6.5% y-o-y). This missed our and market expectations, accounting for only 91% of both our and Bloomberg consensus estimates.

The earnings shortfall was mainly attributable to higher-than-expected operating costs.

The group declared an interim dividend per share (DPS) of 2.3 sen and a special DPS of 2.4 sen, bringing the financial year 2016 (FY16) DPS to 4.7 sen. This is significantly above our expectation of 2.8 sen.

7-Eleven’s FY16 revenue rose 4.8% y-o-y to RM2.1 billion but core net earnings declined 6.5% y-o-y to RM52.2 million. The stronger revenue was driven by improved product mix and growth in number of stores from 1,944 in 2015 to 2,122 in 2016, just 22 stores shy of its initial target of 200 new stores per year. However, this was negated by higher selling and distribution expenses, particularly higher staff costs (impacted by the minimum wage hike in July 2016) which resulted in a y-o-y decrease in core net profit.

The y-o-y sales growth in 4Q16 was on the back of higher number of stores (4Q16: +65 new stores), better merchandise mix and increased consumer promotional activities.

Despite that, core net profit fell by a larger quantum on the back of higher operating expenses (+6.8% y-o-y) as a result of higher rental, depreciation and staff costs.

7-Eleven is pushing forward with its strategy of opening 200 new stores as well as refurbishing another 200 stores each year (it refurbished 202 stores in 2016). The group also aims to launch its first mom-and-pop turned franchised store by early March, marking the maiden roll-out of its store conversion programme.

We cut our FY17 to FY18 earnings per share (EPS) by 9% to 11% to account for lower sales and higher operating costs. This reduces our TP to RM1.15, still based on 2018 forecast price-earnings ratio (PER) of 22 times (in line with the average  PER of its regional peers).

7-Eleven is currently trading 32 times FY17 and 29 times FY18 PERs, which seems rather stretched against its fairly modest three-year (FY16 to FY19) EPS compound annual growth rate of 11.5%. Better-than-expected recovery in consumer spending is a key upside risk.

We prefer Bison Consolidated due to its stronger earnings growth. — CIMB Research, Feb 27


(The Edge) Cash-rich Mah Sing eyes land-bank expansion

Its focus is mainly in Greater Kuala Lumpur, says group MD

KUALA LUMPUR: Mah Sing Group Bhd intends to leverage the group’s healthy balance sheet to pursue new, strategically located land banks.

“Our cash pile and low net gearing allow us to look out for potential land acquisitions, joint ventures and investments. Our focus is mainly in Greater Kuala Lumpur, but we are also open to other high growth locations in Malaysia,” said Mah Sing group managing director (MD) Tan Sri Leong Hoy Kum in a statement yesterday.

The group currently has a cash pile of RM923.8 million with a low net gearing ratio of 0.02 times.

This year, the group noted, will see the expected final stage billings on delivery of vacant possession of properties amounting to about RM607 million, which will further enhance the group’s cash position.

For the financial year ended Dec 31, 2016 (FY16), its property development division’s operating profit grew 2.6% to RM469.9 million, mainly on lower selling, marketing and administrative expenses.

Revenue, however, slid 6.6%, mainly due to lower contributions from M City in Jalan Ampang and Icon City in Petaling Jaya, which were at the tail end of development during the financial year under review.

Mah Sing said it achieved approximately RM1.78 billion sales in FY16 by offering products in line with market demand — beginner homes for the mass market and upgrader homes in selected locations.

It said moving forward, it plans to focus on building more accessibly priced homes. “As we enter into the new financial year, we will continue to adopt a strategic approach and phase our launches. The focus will be on accessible homes, with 73% of our residential sales target price point at RM700,000 and below,” said Leong.

Mah Sing is anticipating the property market to improve in the second half of 2017, and expects demand for affordable housing to pick up as buyers become more realistic about their expectations and continue to view property as the preferred asset class for wealth preservation in Malaysia.

“The government’s commitment to improving the infrastructure of the nation such as the MRT (mass rail transit), LRT (light rail transit) extensions and HSR (high-speed rail) will have [a] multiplier effect on the economy and further improve access to developments, thus creating new demand,” it said.

The group’s profit for FY16 was RM361.36 million, which is 6.5% lower from RM386.68 million a year ago. Revenue slid 4.9% to RM2.96 billion from RM3.11 billion. It proposed a final dividend of 6.5 sen per share, the same quantum as the year before.

The group’s net profit for the final quarter ended Dec 31, 2016, came in at RM85.61 million, down 24% from RM112.89 million a year ago, mainly due to a slight dip in property development revenue as the M City and Icon City projects were nearing completion. Quarterly revenue was down 4% at RM742.18 million from RM773.14 million.