7-Eleven’s  FY14  was  broadly  in  line  with  our  and  consensus expectations.  We  maintain  our  BUY  recommendation  and  TP  of MYR2.00  (28% upside) for now, based on an unchanged  28x FY15F P/E. Revenue and earnings increased 13.2% and 43% YoY respectively.  We make no changes to our earnings forecasts. Management also declared its first interim dividend and a special dividend.

Growth  intact.  7-Eleven‟s  FY14  revenue  rose  13.2%  YoY  to MYR1.89bn, mainly driven by the growth of  new stores (net openings of 188 stores in FY14) and same-store sales growth  (SSSG)  of 4.7% YoY. EBIT increased 45.2% to MYR85.5m, as EBIT margin expanded to 4.5% (+100bps YoY), attributed to  an  increase in ASP (for 60% of its product range)  and  higher  other  operating  income  (+10.1%  YoY,  excluding interest income). All in, FY14 core earnings rose 43% YoY to MYR63.1m due  to  a  margin  improvement.  Compared  to  3Q14,  4Q14  revenue contracted slightly by 1.3% while net profit improved 4.6% QoQ.

Dividends surprise. Management declared  its first interim DPS  of 2.5 sen and a special dividend of 2.6 sen per share, bringing its total DPS for FY14  to  5.1  sen.  This  came  as  a  surprise  to  us,  as  it  implies  a  high payout ratio of close to 100%  (vs its targeted ratio of 30-50%).  Moving forward, we are forecasting for a dividend yield of  2.3-3.2%, pegged to a payout  ratio  of  50%.  We  assign  a  lower  payout  ratio  due  to management‟s  pending  decision  on  building  its  own  combined distribution centre, which we believe will incur high construction cost.

Store  expansion.  4Q  has  seen  the  opening  of  another  68  net  new stores, bringing its store count to 1,745 stores at end-2014. The lower net  store  openings  came  in  within  expectations  and  would  have  an immaterial effect on  our earnings assumptions (<0.5%). We continue to believe that management is on  track to deliver its targeted 600 net store openings by end-2016.

Maintain BUY, unchanged TP.  With results coming largely in line,  our EPS  forecast  remains  unchanged.  We  also  introduce  our  FY17estimates.  We  remain  positive  on  7-Eleven‟s  growth  prospects,  as  we believe its aggressive store network expansion and refurbishment in  the next  two  years  could  improve  its  revenue.  We  also  expect  a  margin improvement  through  its  better  product  mix  and  higher  commission revenue from more  in-store services offered. Maintain BUY with  a  TP of MYR2.00, based on an unchanged 28x FY15F P/E.    

Source: RHB