KUALA LUMPUR (March 5): 7-Eleven Malaysia Holdings Bhd will continue to grapple with soft consumer spending in the near term, Maybank Investment Bank (Maybank IB) said on Tuesday amid broader caution among analysts over the convenience store chain operator's outlook.

Operating costs are also rising, Maybank IB said in a note to clients, and slashed earnings forecasts for FY2024-FY2026 by 8% to 10%. That lowered its target price to RM2.00 from RM2.10, and the research house maintained its "hold" call for the stock.

The company's "pivot towards higher margin fresh food products could partially buffer potential sales downside" if store expansion plans and new fresh food items are rolled out smoothly, Maybank IB said. "Execution is key."

Shares of 7-Eleven have remained largely flat year-to-date amid broader concern over consumption spending outlook on the back of rising costs of living.

Out of five analysts covering the stock, three have 7-Eleven Malaysia on "hold" call, including Maybank IB, while one has a "buy" call while one rated the stock "sell". The median 12-month target price is RM2.00, according to Bloomberg.

Maybank IB flagged narrower profit margin from higher advertising-and-promotion activities, fresh food wastage rate and costs related to its new distribution centre in latest FY2023 results.

Plans to move up the value chain are "well underway and we believe group margin accretion will gradually flow through" as the number of fresh food products are raised, Maybank IB noted. "That said, subdued consumer spending could delay consumer reception of its new products as consumption habits turn cautious."

7-Eleven Malaysia registered a record-high net profit of RM221.08 million for the fourth quarter ended Dec 31, 2023 (4QFY2023), thanks largely to divestment gain derived from the stake sale in 75%-owned subsidiary Caring Pharmacy Group Bhd.

However, the company posted an operating loss of RM28.11 million in 4QFY2023 amid a sharp 58% rise in administrative expenses to RM98.5 million from longer operating hours, new store expansions and workforce expansion.

"Execution is also paramount to ensure cost overruns do not occur, particularly with high food wastages and labour costs," Maybank IB added.