During  its  recent  briefing,  7-Eleven  provided  some  updates  on  its growth  strategies.  Maintain  BUY  with  a  revised  MYR1.85  TP  (from MYR2.00),  17%  upside,  based  on  an  unchanged  28x  FY15F  P/E.  The company  reiterated  its  2015  targets  for  store  expansion  and refurbishment,  but  is  still evaluating its plans  for  building its own  CDC. We trim our FY15/FY16 EPS forecasts accordingly.    

Target  in  sight.  Management  said  7-Eleven  Malaysia  (7-Eleven)  was looking to open another 200 net new stores and refurbish another 200 in 2015.  About 35% of its new stores will be rolled  out in  the  Klang Valley, with the  remainder  in  other  growing  areas  in the  East  Coast  and  East Malaysia.  7-Eleven  was  also  looking  to  include  up  to  35  “next generation”  stores and 130  “quick win food service  stores”  as part of its refurbishment  plans  this  year.  With  this  continued  effort,  management remain  confident  of  achieving  its  600  stores  target  each  for  new  store openings and store refurbishment by end-2016.

Evaluating combined distribution centre  (CDC).  7-Eleven said  it  was still  reviewing  the  initial  plan  on  building  its  own  CDC,  as  it  aims  to continue  monitoring  its  product  demand  and  changes  in  product  mix. This, in turn, may alter its CDC plan to possibly be a chilled frozen facility with  a  small  centralised  kitchen.  We  believe  that  funding  for  thisalteration  will  not  be  an  issue,  as  7-Eleven  still  has  MYR111.8m  from IPO proceeds that can be utilised for capex.      

Forecasts  and  risks.  Taking  into  account  higher  opex  assumptionsgoing  forward,  we  reduce  our  FY15F/FY16F  EPS  by  6-7%.  We  also revise our dividend payout ratio assumption to 60% (from 50%), as we believe that there could be more dividend upside   due to its strong cash flow .  Key  investment  risks  include  a  slowdown  in  consumer  sentiment and reliance on a few suppliers only.

Maintain BUY, TP revised.  Post  our earnings revision, we lower our TP to MYR1.85 (from MYR2.00), pegged to an unchanged 28x FY15F P/E. We  remain  upbeat  on  7-Eleven’s  growth  prospects,  as  we  believe  its revenue should improve in tandem with its store network expansion plan. We also expect its effective product mix/improved commission revenue from in-store services to expand its  future  margins. 7-Eleven has been focusing on increasing  its contribution from higher -margin products (eg fresh food products) and is also expanding its in-store services offerings.  

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Source: RHB