7-11 turning more cautious on expansion plans

KUCHING: 7- Eleven Malaysia Holdings Bhd (7-11) seems to have turned a little more cautious in its expansion plans as the group’s current rate of expansion for the first 9 months of 2017 (9M17) has seen a significant year over year (y-o-y) drop of -32.94 per cent of new stores.

In a report from Maybank Investment Bank Bhd (Maybank IB Research), the research arm highlighted that 7-11 had opened only 85 new stores in 9M17 while opening 113 new stores in 9M16 – bringing the total store count to 2,207.

“We believe that 7-11 has turned a little cautious in its expansions plans (and) understand that the geographical mix for new store openings in 9M17 was 50/50 in Klang Valley and other parts of Malaysia, respectively,” said the research arm.

Despite the expansion slowdown, Maybank IB Research guided that 7-11’s management has left its international target of 150 new stores for 2017 unchanged for the time being.

Performance wise, the group’s 3Q17 results has seen a revenue growth of 3 per cent y-o-y and was largely driven by volumes and new store growth, and gross profit margins for the period also saw improvement of 0.9 points y-o-y to 31.7 per cent largely on more controlled promotions and better sales mix.

3Q17 also saw a jump in other income of 26 per cent y-o-y to RM34 from RM27 million due to growth in marketing income and non- fulfilment claims against vendors.

Overall, it seems that 7-11 is poised to see steady growth in the near-term.

“We expect a better 2018 as 7-11 finetunes its cost efficiencies such as supply chain costs and labour costs, and on new store growth.

“But for now, valuations are lofty as 7-11 trades at 32.0 fold of calendar year 2018 price earnings ratio versus its peer average of 27.7 fold,” said the research arm.

Due to this, Maybank IB Research will be keeping their earnings forecast as they await further delivery of results, and maintaining their ‘Sell’ call with an unchanged target price of RM1.24.