Results

9MFY14 revenue of RM249.7m was translated into core net profit of RM13.8m, accounted for 55.1% and 57.0% of HLIB and consensus full-year estimates respectively.

We deem this to be broadly within our expectations as the group’s 2H performance is seasonally stronger.

Deviations

Largely in-line.

Dividends

None.

Highlights

3QFY14 PBT of RM9.1m registered a significant growth of +155% qoq partly due to the listing expenses of RM1.7m in 2QFY14. Excluding the listing expenses, PBT growth is approximately +RM3.8m (+71.6% qoq) mainly contributed by the materialisation of purchase rebate entitlements from suppliers.

As part of the group’s expansion plan, Caring is targeting to increase its total outlet network from the current 93 outlets to a total of up to 120 outlets by 2016. The plan is on track with addition of 5 new outlets in the current quarter comprising 2 shopping complex outlets, 1 street outlet and 2 specialised retail outlets.

The World Health Organisation (WHO) recommends an ideal pharmacist-to-population ratio of 1:2000. As at Jan 2013, the Malaysian Ministry of Health indicated that the country’s ratio was 1:2947 hence we believe there is still room for growth for Caring and the industry as a whole.

Our forecasts project the setting up of 12-13 new outlets per annum in FY2015F and FY2016F, which is expected to underpin double-digit prospective revenue and earnings growth, based on our estimates.

Forecasts

Unchanged.

Catalysts

• Successful implementation of outlet expansion plans over the next few years to sustain medium to longer-term growth.
• Ability to gain market share by being the only community pharmacy chain providing full-time registered pharmacists at all outlets during retail hours.
• Separation of prescribing and dispensing of scheduled and OTC drugs.

Risks

• Delays in outlet expansion plans, which are dependent on the availability of ideal locations and registered pharmacists.
• Keen competition from other pharmacy chains such as Guardian and Watsons.
• Slowdown in consumer discretionary spending.

Valuation

Reiterate BUY call on the stock with unchanged TP of RM2.40 based on FY15F PER of 17x, on par with other domestic market-oriented retail pharmacy chain operators in the region.

Caring is currently trading at prospective PE ratings of 13- 14x over FY2015F-FY2016F.

Source: Hong Leong Investment Bank Research - 28 Apr 2014