It will take time for SEM to realise the benefit of opening more 7-Cafe as it needs to be selective in terms of location while being mindful of the capex requirement and potential competition.

But the benefit of realising higher transaction size will be huge as it flows almost directly to the bottom line. This can be clearly seen from its improving net profit margin of 3.9% in 2Q2022 (PAT of RM25m on revenue of RM644m) for convenient store segment vs 2.6% in 3Q2020 (PAT of RM13.2m on revenue RM505m).

CIMB analyst has budgeted a higher capex of RM120 million a year, taking the top end RM600k as average capex for 200 new 7-Cafe a year, but I think it will likely come within RM100m

certainly so as SEM only had 31 7-Cafe as of 30 June 2022 and planned to have 130 7-Cafe by end 2022. This means that it can open 100 7-Cafe outlets in 6 months.

If it continues doing so at a pace of 200 7-Cafe per year, then in 5 years time 50% of its stores will be in 7-Cafe format. The capex for opening a new 7-Cafe is higher at RM500k-600k compared to RM300-400k for a traditional 7-11 convenient store. But I think converting a traditional 7-11 convenient store into a 7-Cafe will need lower capex than RM500-600k, possibly just RM300k. If I take an average of RM450k for opening / converting a 7-Cafe, then to open 200 7-Cafes will require about RM90 million capex a year, which is within my ballpark estimates.

Furthermore, I see higher free cashflows for SEM compared to BJFood

As calculated above, BJFood may register free cashflows of RM134m a year or 7 sen per share vs current share price of RM0.99 giving a FCF yield of lower than 7%.
SEM may register over RM300m of operating cashflows a year, minus off planned capex of about RM80m, free cashflows may come in about RM220-230m a year or about 18 sen per share vs share price 1.65, giving a FCF yield of 10.9%

For higher earnings growth, I have already switched to SEM as I see similar growth trend in its 7-11 business profit margin as in BJFood profit margin expansion from 2021 once they achieved economy of scales and successful rolling out of higher margin store format (drive-thru store for Starbucks and 7-Cafe format for 7-11)

I have not read the CIMB report, but I see Maybank analyst raising tp for BJFood from RM1.24 to RM1.50 after raising EBIT margin by 2% to 20%, which I think is hard to achieve in the high inflation environment.

But I do note that growth may come in a decent rate as BJFood plans to open 35-40 new Starbucks outlets in FY2023 from currently 376 outlets, for a 10% increase in topline.

As for its earnings outlook, I think its operating margin will come under pressure as ringgit depreciates a lot against US dollars, Starbucks cannot just keep raising prices of the drinks (now already at RM15-18) beyond RM20 per coffee. This inflated prices will for sure dampen demand, for one I will go more to local kopitium for a traditional white coffee at RM2.00 per cup, rather than spending 10x more for a Starbucks coffee.

@Observatory, I deduct lease liabilities payment from operating cashflows as this payment is essentially rentals paid to shop owners, which are operating costs. It is only that current accounting treatment tends to capitalise rental payments as lease liabilities in the balance sheet, then expenses off the lease liabilities interest portion in the P&L but charges out the full lease liabilities interest and the principal repayment portions in the Cashflows statement (as both the interest and the principal repayment portions are essentially rental payments, actual cash out)

BJFood share price has already gone up almost 20% in 4 weeks from recent low of 0.83 to all time high of 0.99-1.01 today, cannot expect much more.

Furthermore, its Sept qtrly result actually dropped 17% q-on-q, no big surprise there

You can see that just now there was a big buyer with 100k at 1.65, it was either VT & co or another smart money scooping up SEM cheap.

Good news is coming!!

7-Cafe is the future and it will help SEM to fend off competition from other convenient stores.
Transaction size per pax has inceased by over 15% y-on-y to RM8.43 in 2Q2022, pushing gross margin to a high of 33%.

Same-store-sales growth achieved a good 44.1% in 2Q2022, helped by higher transaction size per pax and longer operating hours for certain 7-11 convenient stores.

The numbers speak for itself and these will only improve further in 2023 as more 7-Cafes are opened and as Caring pharmacy expands its network in East Malaysia

Selling pressure has abated after 14.5 million shares have been dumped since the big fall from 2.38. Time to buy back!!

Looking beyond FY2023, I expect the company to be more generous in dividend payouts as free cash flows may increase by another RM4m from interest expense saving after debt reduction to RM134m a year (assuming similar capex level of RM80m a year and similar profit level).
I think the company can then declare dividends of 5.0 sen or above every year.

Dividend for Q1FY2023 is just 0.5 sen amounting to RM9.74m, annualised to RM39 million or 2.0 sen per share.

I suspect they may have taken into account the need to pare down borrowing progressively, given the outstanding debts at RM173.65 million as of 30 Sept 2022.

They still have free cashflows of RM130m - RM39m = RM91m for debt reduction.

Given that the company has reduced debts by RM32.5m in Q1 FY2023, they still have room to reduce debts further by another RM58.5 million from RM173.65m to RM115 million level which I deem comfortable.

BJFood operating cashflows were strong at RM77.6m minus interest expenses RM6.4m and payment of lease liabilities RM17.9m = RM53.3 million annualised to RM213 million or 10.9 sen per share.
Capex for Starbucks and KKR expansion rose to RM19.5m in Q1 FY2023, annualised to RM78 million which is within expectation.
Hence free cashflows may come in at RM213m - RM78m - RM5m = RM130 million or 6.6 sen per share.

haha 1pingpong lagi garang, I only hoped to scoop up 200,000 shares of YTL at 0.50.
But it seems like 0.50 is quite hard to get, so I started nimbling from 0.545 this morning

welcome onboard Pinky. You will get 3 sen dividend tomorrow

2.5 sen dividend going ex tomorrow

haha treasurehunt is so determined at selling off Caring, I would be glad if you are right on an imminent disposal at RM1.3 bn or higher.

Pls go and advise VT & team and try get a buyer fast

Either way, SEM share price will go past RM2.38 eventually to beyond RM4.00.

Good closing today!

yes another RM400 million will be needed to expand 7-Cafe outlets to 1,000. SEM may fund it through 2 years of operating cash flows or selling all or part of Caring.

But I do not think it will go expand so rapidly (add 1,000 outlets in 2 years), maybe current pace of 100-150 outlets per year is ideal, or could go higher at 200-250 outlets per year if it manages to sell Caring

share price rebound is on the way. I think this round the share price uptrend will be fast as weak holders and goreng kaki have been washed out, now left only VT to control the price movement

@Amazonboy, agree with your comment. VT must believe that SEM is worth way higher than RM2.38 as he got the company to buy back shares up to RM2.38. He must also believe that Caring is worth higher than RM1.3 billion price tag if he decides to hold on

VT oso want to make $$...we have to trust his judgment...since he believe can get higher price

Despite the encouraging operating metrix, I still think a deal on Caring should be forth coming soon. Lets go for a good lunch, and will see SEM share price rebound in the afternoon

Lease liabilities are a class of liabilities but are not strictly borrowings. In the case of SEM, lease liabilities are mainly shop rentals that it enters with shop owners for tenancy of 2-5 years for its over 2000 shop outlet. Current accounting method calls for capitalising of such long term tenancy as a form of liabilities. These lease liabilities are charged out in part in the P&L as lease interests and in whole in cashflow statements as lease liabilities interest & repayment.
So usually we do not add lease liabilities into total borrowings, I would normally treat it as an operating cost

RM1.3 billion price tag is good enough to me too, as SEM will pocket almost RM1.0 billion cash. It could pay off all its debts and still have RM450 million cash, and would be able to save RM30 million of interest costs a year

the share price collapse over the last 2 days might be caused by insiders selling or goreng kaki pulling off ahead of slowing of SBB, I do not know who

The volumes for these 2 days selling totalled some 7 million shares, and as you have kindly calculated, the net buying of SEM from other parties (other than company SBB) was 8.1 million shares from 7 Oct to 3 Nov, so the selling should ease off from today as most of these 8.1m share buyers should have sold off

of course, disposing of Caring now will give the share price a push, but what if the offeror sticks to RM1.3 billion offer?

but it is not up to us to decide whether to sell Caring or not, it depends on whether SEM can get a good offer

If SEM can get a valuation of RM1.5 bn to RM1.8 bn for Caring or a PER of 35x to 40x, then it will be a good value to monetise it

I agree with you that disposing of Caring at a good price is a good option for SEM now

Even after I factor in the depreciation & amortisation and the interest costs of RM63m, SEM would see its pre-tax profit jumping by over 100% in next 2 years

EBITDA is an important indicator as it excludes the non-cash items like depreciation and amortisation

As I already pointed out, SEM has very strong operating cash flows of over RM300 million a year, it will not have problems of lack of cash for expansion which just requires about RM75m a year
@treasurehunt, pls recheck your figures from SEM latest quarterly report

SEM convenient store business has already been registering encouraging growth in transaction value since it started the 7-Cafe business format, with transaction ticket per pax at RM8.43 for 2QFY2022 vs RM7.31 for 2QFY2021 or an increase of 15%.
It was reported that a 7-Cafe store registered an average transaction size of over RM12 per pax, compared to just RM6.00 per pax for a traditional 7-11 convenient store. As SEM converts more traditional 7-11 stores to 7-Cafe format (just like BJFood build more drive-thru format store of Starbucks), average transaction ticket will increase over time for the group convenient store business.

by then, pretax profit would jump by a much larger factor, i.e. RM800m (EBITDA) - RM194m (depreciation) - RM63m (interest costs) = RM543 million, or 185% increase from current level of RM190 million.
Applying a tax rate of 25%, net profit would come in at RM407 million or EPS of 33 sen.
Applying a normal PER of 20x, SEM would be worth RM6.60 per share.
Applying a 5-year average PER of 31x, SEM would be worth RM10.20 per share.

SEM has a huge fixed overhead costs (selling & distribution, administration costs), i.e. shop rentals, labour costs, electricity & water bills etc, of RM470m for 6 months ended 30 June 2022, or 26.4% of revenue.

If transaction per visit increases by 10% while fixed costs remain, revenue will increase by RM357 million a year and EBITDA will increase by almost the same amount to RM800 million giving an EBITDA margin of 22.5%, which would catch up to BJFood's level of EBITDA margin for FY2020.

True that SEM has a low net profit margin currently, but the better way to gauge its profit margin will be to look at its gross margin and EBITDA margin.

For the 6 months ended 30 June 2022, SEM registered revenue of RM1,783.6 million and gross profit of RM503.9 million giving a gross profit margin of 28.8%.
SEM's EBITDA came in at RM224 million or an EBITDA margin of 12.5%.

In comparison, BJFood had an EBITDA margin of 34% for FY2021 which is substantially higher than SEM EBITDA margin.
But if we look back a few years when BJFood had not achieved economy of scales for its Starbuck business, BJFood EBITDA margin was at 23.9% for FY2020 and 15.4% for FY2019. It was only when Starbucks embarked on aggressive expansion of its higher-margin drive-thru format stores from 2019 then its margin expanded very fast.

I see similar trend in 7-11 business as it expands on the high-margin 7-Cafe stores which enjoy almost double transaction per pax than traditional 7-11 convenient stores.

While SEM could distribute most its free cashflows as dividends, say RM185 million or 15 sen dividend per share (to give a 10% dividend yield), it could use the same money to buy back 10% of own shares at current prices and distribute the treasurer shares as dividends, in which case minority shareholders like us would still get 10% dividend yield.

I would prefer the latter where the company share price can be pushed up to a more reasonable level, i.e. RM2.00-2.50 as the company buys back the share. For cash dividend distribution, the share price will be adjusted down by 15 sen once dividend goes ex and share price has less support.

Part of this huge free cash flows have been used to aggressively buy back own shares, which may top RM33 million when it hits 10% max SBB. I would applaud such SBB given that the company has so much free cashflows of RM240 million a year

So after allowing for planned capex of RM75 million, SEM will still have free cash flows of RM315m - 75m = RM240 million or almost 20 sen per share for dividend distribution and debt reduction.

For the 6 months ended 30 June 2022, SEM registered operating cash flows (before capex) of RM157.9 million, annualised to RM315.8 million which is very strong.

Capex incurred in the 6 months ended 30 June 2022 amounted to RM37.83 million, annualised to RM75.66 million, in line with what SEM CEO said on planned opening of 100-150 7-Cafe this year at average RM500k per store.

SEM total borrowings amounted to RM745.3 million, minus off cash holdings of RM197.4m, net debt is at RM547.9 million only, not RM1.4 billion.
Interest payment for 6 months ended 30 June 2022 amounted to RM15.368 million, annualised to RM30.7 million, implying an average interest rate of 30.7/745.3 = 4.1% which is deemed reasonable.
Interest received for 6 months ended 30 June 2022 amounted to RM1.346 million, annualised to RM2.69m, implying an average interest income rate of 2.69/197.4 = 1.36% inline with normal bank deposit rates.

But I do reckon that SEM share price correction today was just too drastic, many got caught as company share buyback did not push it up at last minute, as the company had collected 1.8m shares during the day trying to defend the selling but failed miserably

VT counters are exciting because he is a master in corporate deals. I remember BJFood was also on a rapid uptrend from 2.00 level to above 4.00, spurred by a couple of good quarterly results and company share buyback. Though VT was selling BJFood shares in open market, but BJFood share price kept going up due to SBB and more retail investors participating on valuation ground. BJFood did suffer a big share price correction along the way but quickly rebounded, now to all time high again close to 1.00 (or RM5.00 before bonus) today

anyway, I did not buy SEM bcoz of pang72 comments, I bought way before at average cost of 1.56.
I bought SEM due to its attractive valuation then. Its convenient store business kicked in substantially higher profits in past 2 quarters after achieving economy of scale and higher margin from its successful launch of 7-Cafe.

Of course, the driver of this counter was definitely the news of it disposing Caring at a good price. But as I said, even though SEM does not manage to get the valuation of RM1.5-1.8 billion that it wants for Caring, it is not in a hurry to sell it.

Retail pharmacy chain is a resilient business with still growth potential, Caring has some 210 outlets, compared to over 500 for Guardian. And it is just about to get into East Malaysia by looking at JOM Pharmacy chain with 15 outlets in Sarawak.
SEM could grow Caring into a bigger chain organically or by M&A, I will not be surprise if Caring becomes a chain with 400 outlets in 5 years.

ah pang72 is back, thought you have dumped and gone

I did take some little profit at 2.38 but most of my holdings get stuck. Will hold for few more weeks to see

could it be the whole story was just made up by The Edge weekly, coupled with some goreng kaki to pump and dump? only time will tell...

2 weeks of gains is gone in one day, pufff