Caring’s  9MFY14  results  missed  our  and  consensus  estimates.  Net profit  recorded  MYR13.9m or  54%  of  our  previous  full-year  forecast,  a 247%  increase  q-o-q  mainly  due  to  the  one-off  IPO  expenses  of MYR1.74m  incurred  during  2QFY14.  We  cut  our  FY14-15  earnings forecasts  by  15/9%  respectively  to  account  for  increasing  costs  from new outlet openings. Maintain BUY with MYR2.48 FV (from MYR2.38).

• Revenue and profit improved.  Caring  recorded MYR82.0m of revenue n 3QFY14,  a marginal  2.9% q-o-q  decline. However,  it registered a  net profit  of  MYR6.6m  compared  with  MYR1.9m  in  2QFY14,  a  247.3% increase  q-o-q.  This  was  due  to  improved  gross  margins  helped  by purchase rebates from suppliers,  in addition to IPO expenses incurred in the preceding quarter.  Net profit margin improved to 8.1% (from 2.3% in 2QFY14).
• Expansion plans on track. In 3QFY14, Caring opened  five  new outlets. To date, Caring has 93 (from 88 as at Nov 2013) outlets nationwide. The five  new  outlets  are  located  in  shopping  malls  (two),  street  (one)  and specialised  retail  centers  (two).  Management  also  revealed  that  the progress of its new headquarter  and warehouse situated in PJ Old Town is  currently  in  the  process  of  obtaining  certificate  of  completion  and compliance (CCC) from the relevant authorities. Caring targets to obtain all  approvals  by  June  and  to  move  in  to  the  newly  built  facility  in November.  The  new  facility  is  expected  to  provide  a  more  centralised management and efficient logistics arrangements.
• Managing  risk.  Despite  the  rapid  expansion  in  a  number  of  outlets, Caring’s  management  does  acknowledge  the:  i)  scarcity  of  certified pharmacists, ii) gestation period for new outlets and iii) dynamic changesin consumer spending patterns that  pose a continuous challenge  to  the company which requires constant and active monitoring and control.
• Maintaining  BUY.  We  cut  our  forecasts  for  FY14-15  by  15/9% respectively  to account for  the  higher start-up  costs incurred  and lowerinitial  marginal  revenue  contributions  from  new  outlets  opened.  We maintain  our  BUY  call  on  Caring  and  revise  our  FV  to  MYR2.48  (from MYR2.38)  as  we  roll  forward  our  base  year  to  CY15.  Our  target  P/E remains  at  18x,  a  discount  to  larger  healthcare stocks.  We  continue  to like  the  stock  due  to  its:  i)  commitment  to  expansion,  ii)  strong  market presence in the retail healthcare segment, and iii) decent ROEs. 

Company Profile
Caring Pharmacy (CARiNG) is a leading community pharmacy chain operator. It operates Malaysia’s third-largest chain of pharmacies, with a dominant presence in the Klang Valley.

Source: RHB