1QFY22 earnings came above our/street’s expectation at 33%/34% on better-than-expected contribution from Pharma segments due to personal hygiene awareness, mitigating the higher opex on CVS. We are optimistic on SEM’s outlook on the back of longer operation hours and favorable product mix for both segments. We raise FY22E revenue/PATAMI by 5%/6%. Maintain OP with a higher TP of RM1.70 (from RM1.60) based on FY22E EPS of 7.0 sen at 24x PER.

Above expectation. 1QFY22 PATAMI of RM24.4m came above our/consensus estimate at 33%/34%. No dividend declared as expected.

YoY, revenue improved 27.7% to RM840m, mainly lifted by CVS (+16.7%) and Pharma (51.9%) segments. The improvement in CVS revenue was raised primarily by higher APSD and higher store traffic on the easing of movement restrictions, while the Pharma segment benefitted from higher contribution from Blue Ocean products. EBIT margin improved by 2.1ppt on better cost management. PATAMI rose by 107% boosted by a lower ETR of 32% (vs. 1QFY21: 34%).

QoQ, revenue improved by 5.6% balanced by muted growth in CVS and a 15% rebound in the Pharma segment. EBIT dipped by 4.4% as EBIT margin decreased by 0.8ppt to 7.4% due to higher store operating expenses. Group PATAMI declined by 16.6% to RM24.4m.

Outlook. The group stated that they have successfully rolled out 15 7-café store which provides fresh food and beverages. We expect the group to continue expanding their 7-café store, and CVS to ride on the “endemic” situation as consumers are on a “revenge outing”. Despite movement restrictions being lifted, the Pharma segment continues to grow because consumers are focusing on personal hygiene. Thus, we are positive on SEM on the back of: (i) longer operation hours, and (ii) higher store traffic on normalising economic activities. However, SEM would face challenges on intensifying competition from its peers, which are stocked with ample fresh food offerings.

Post results. We increase FY22E revenue/PATAMI by 5%/6% to RM3.0b/RM79.5m to account for higher store traffic and favourable product mix. We maintain our FY23E earnings and FY22E/FY23E DPS.

OUTPERFORM with higher TP of RM1.70 (from RM1.60) based on new FY22E EPS of 7.0 sen at 24x PER, at 0.5SD below its 5-year mean to account for higher contribution from both segments on higher consumer count in store and personal hygiene awareness.

Key risks to our call include: lower–than-expected sales from its Pharma segment, and higher-than-expected operating expenses.

Source: Kenanga Research - 27 May 2022