7-Eleven’s  3Q14 results were broadly in line, with net profit improving 109% YoY to MYR17.1m, partly contributed by an increase in  ASP  and stronger  other  operating  income.  We  maintain  our  BUY  call  and MYR2.00  TP, derived from 28x FY15F P/E, a 21.2% upside.  Its 9M14 net profit  makes  up  70%  of  consensus’  FY14  net  profit.  We  are  confident that its business expansion plans are progressing well. 

Growth  in  sales  and  earnings.  7-Eleven  Malaysia  (7-Eleven)’s  3Q14 revenue rose 11.7% YoY to MYR487.3m,  driven by stronger same-store sales growth of 4.5%, growth in  new  stores, improved merchandise mix and promotional activities.  Meanwhile, its net profit increased 109% YoY to MYR17.1m, due to an increase in  ASP  and  stronger other operating income (excluding interest income). 

Strong  margin  showing.  3Q14  EBITDA  grew  by  63.3%  YoY  to MYR31.5m,  as  EBITDA  margin  expanded  to  6.5%  (+210bps  YoY). Overall expenses have  declined as a percentage of sales  to 28% from 29.4%. Management attributed this to a reduction of 16.2% or MYR4.0min its administrative and other operating expenses, mainly caused by a lower advertising cost.

On track to deliver.  We believe that 7-Eleven’s store network expansion plan  is  progressing  well,  which  has  seen  its  store  count  increasing  to 1,677  stores  in  3Q14  from  1,557  stores  in  2013.  During  the  quarter under review, a net total of 54 stores were opened.  This will continue to drive  the  company’s  topline  growth  in  the  coming  quarter,  with  the company ramping up its store expansion initiative. 

Maintain BUY, TP unchanged.  With results coming largely in line, we make no changes to our earnings estimate at this juncture.  We remain positive  on  7-Eleven’s  growth  prospects,  as  we  believe  its  revenue should improve in tandem with its network expansion plan. We expect its better product mix and higher commission revenue from in-store services to  continue  improving  its  net  margin.  Maintain  BUY,  with  our  TP unchanged at MYR2.00, based on 28x FY15F P/E. 

Source: RHB