KUALA LUMPUR: 7-Eleven Malaysia Holdings Bhd's (SEM) potential divestment of its pharmacy chain Caring Pharmacy Group Bhd is seen as positive as it allows SEM to focus on growing its convenience store business and strengthen its financial profile.
CGS-CIMB Research, in a report, said the estimated potential disposal could lift SEM's FY23-24 earnings-per-share (EPS) by 33-36 per cent, assuming the company receives cash proceeds of RM1.3 billion, and pares down its debt entirely, which could potentially gain interest cost savings of RM43 million per year.
Further, SEM could also gain an interest income of RM17 million per year provided the deal is completed by the fourth quarter (Q4) of 2022.
To recap, SEM, in an article, is said to be looking at a potential divestment of Caring Pharmacy after attracting interest from some Japanese parties, potentially valuing the entire pharmacy group at RM1.8 billion.
"Assuming the potential divestment is only in exchange for cash, we believe that SEM could receive cash proceeds worth RM1.3 billion, based on its 75 per cent stake in Caring and record a potential gain on disposal of RM1.0 billion based on the cost of investment of RM292 million when it took over the company in 2020.
"At this juncture, we understand that SEM has neither confirmed nor denied the said news article," CGS-CIMB Research noted.
Caring Pharmacy was previously listed on the main market of Bursa Malaysia until its delisting on 8 May 2020, when SEM took over.
Since then, the number of Caring Pharmacy outlets has increased from 130 to 199 as of 31 March 2022 through organic store expansion and the acquisition of a 67 per cent stake in The Pill House Pharmacy (Georgetown Pharmacy) and a 60 per cent stake in Wellings Pharmacy in the second quarter (Q2) of 2021.
SEM has also ventured into the Indonesian pharmacy market via a joint venture.
As of 31 March 2021, Caring Pharmacy's customer loyalty programme has more than one million validated members and 531,000 mobile app users, which is a testament to its strong customer base and operating scale.
"Our FY22-24 EPS forecasts and Hold call are intact. Our target remains at RM1.48.
"Despite rising competition in the convenience store (CVS) space, we believe that its share price should be supported by its dominant position in the CVS and pharmaceutical space in terms of store count (2,437 7-Eleven stores and 199 pharmacies as of 31 March 2022)," CGS-CIMB REsearch noted.