KUALA LUMPUR (July 24): 7-Eleven Malaysia Holdings Bhd was amongst the top losers on Bursa Malaysia on Monday (July 24), following the convenience store chain operator’s announcement on selling its 75% stake in Caring Pharmacy Group Bhd to BIG Pharmacy Healthcare Sdn Bhd for RM637.5 million last Friday.

At the closing bell on Monday, 7-Eleven was the fourth biggest loser as its share price dropped by 9% or 20 sen to close at RM2, with 387,400 shares traded.

7-Eleven’s shares gained 13% year to date and 29% over the past 12 months, giving it a market capitalisation of RM2.34 billion.

According to 7-Eleven’s statement on July 21, the offer from BIG Pharmacy includes the acquisition of all of Caring Pharmacy’s subsidiaries and associated companies, which own and operate the retail pharmacy businesses under the 'CARiNG', 'Georgetown' and 'Wellings' brands, as well as any manufacturing and distribution of in-house products in Malaysia.

Following the disposal, 7-Eleven expects to redirect its resources to grow its convenience store business.

Kenanga Research has raised 7-Eleven’s target price (TP) to RM2.59, up from RM2.38 previously, based on an unchanged FY2023 price-earnings ratio (PER) of 28 times.

The research house stated it was positive on the disposal as it is earnings accretive.

Kenanga Research analyst Ahmad Ramzani Ramli said that 7-Eleven “will be better off deploying its capital and resources towards growing its convenience store business.”

In the absence of Caring Pharmacy’s sales, the research firms cut its topline forecast for 7-Eleven’s 2024 financial year by 54%.

“At a RM850 million valuation in its entirety, the deal values the retail pharmacy chain at 19.6 times its historical FY2022 PER (when its earnings were supercharged by the pandemic), but 32.7 times of our FY2024 forecast earnings (which are more normalised post-pandemic),” Ahmad Ramzani expanded.

He further added that this is at a significant premium to 19 times consensus forward PER for the closest comparable Apex Healthcare Bhd, pointing to a fairly good deal for 7-Eleven.

“The disposal proceeds will turn 7-Eleven’s net debt and net gearing of RM435.5 million and 2.9 times as at end-March 2023 to a net cash of RM182.3 million,” Ahmad Ramzani added.

Nevertheless, Maybank Investment Bank displayed a contrasting view, changing its initial “hold” call to “sell”, while maintaining its TP of RM1.90 based on 28 times FY2023 PER.

“The total disposal consideration of RM637.5 million equates to 19.6 times FY2022 PER, below 7-Eleven’s 31.3 times FY2022 PER, and 7-Eleven’s earlier acquisition multiple of 27 times when it bought a 25% equity interest in Caring Pharmacy back in 2019,” commented Maybank IB analyst Jade Tam.

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7-Eleven Malaysia confirms selling Caring Pharmacy stake to BIG Pharmacy