Caring remains on investors’ radar
Company said to be attracting new suitors after breakdown in talks with South Koreans
CARING Pharmacy Group Bhd, which earlier this year attracted the interest of a South Korean foreign equity firm, appears to be attracting new suitors due to its strong distribution network and growing profitability.
A few suitors are said to be looking to buy a strategic stake in the retail chain pharmacy and this also includes some Japanese parties.
Interest from the Japanese has heightened following Prime Minister Tun Dr Mahathir Mohamad’s working visit to Japan two weeks ago, where the Look East policy is now being revived.
“There are many Japanese companies waiting to make investments in Malaysia,” said one investment banker who attended the Nikkei Conference in Japan, where Mahathir gave his keynote speech.
Sources say that the deal between Caring and the South Korean party has broken down due to valuation issues.
Nonetheless, Caring remains on the radar of other parties mainly because of its growing presence and the nature of its business, which is resilient.
Caring Pharmacy is a specialised retail chain with a growing presence in the most populated areas in Peninsular Malaysia and has principal rights to distribute some pharmaceutical and personalised healthcare products.
It undertakes retail sales of pharmaceutical, healthcare and personal care products. It is also the fastest growing pharmaceutical retail chain and is expected to open between 10 and 12 stores in 2018.
As of Feb 28, 2018, it has 114 community pharmacies from 113 in the previous quarter. It has been reported that about 60% of its outlets are in joint ventures with the store pharmacist with Caring Pharmacy retaining majority control.
Caring Pharmacy has also embarked on a digital transformation by launching its Caring Regular Membership Programme mobile app earlier this year.
Introduced in January, it was developed in partnership with Capillary Tech, and is part of Caring’s customer experience management to engage with customers and under- stand their needs.
At Caring’s current price of RM1.64, the stock is trading at a price earnings ratio of 20.97 times, and is down 23% on a year to date basis.
The stock touched its high of RM2.20 on Dec 28, 2017, likely due to the speculation that the South Korean party was buying a majority stake. Since then, the stock has meandered downwards.
At its price of RM1.64, it has a market capitalisation of RM357mil and offers a dividend yield of 1.83%. The dividends have been rising over the last three years at a rate of 25.99%.
“Private equity firms are increasingly interested in the healthcare segment. The retail health business looks attractive because it still offers multiples that are reasonable with lots of opportunities to unlock value. Margins can also be boosted with better cost management,” says one observer.
“Furthermore, the retail health sector in general is benefiting from healthcare trends and plays to the needs of an aging population, and many other health-related busi- nesses, it’s a global trend,” he adds.
In the US, healthcare was the only sector to receive more private equity dollars in 2017 than 2016.
Private equity investments in US healthcare totalled US$83bil, up from US$72bil in 2016, according to the American Investment Council’s 2017 fourth quarter Industry Investment Report.
Overall, private equity invested US$542bil in the US in 2017, down from US$646bil in 2016.
Results wise, Caring Pharmacy recorded a slightly lower net profit of RM5.16mil for its third quarter ended Feb 28. 2019 from RM5.28mil in the corresponding period last year. Revenue was up 12.82% to RM130.48mil. Its cash position dropped to RM79.35mil from RM109.03mil previously.
In its filing to Bursa, Caring Pharmacy said that the higher revenue was mainly contributed by the higher sales generated from existing outlets due to aggressive and extensive promotional campaign launched during the quarter.
The company attributed the growth in its bottom line to the increase in same-store sales from its existing chain of outlets.
For the nine-month period, net profit was 44.74% up to RM12.69mil on the back of a 11.37% jump in revenue to RM379.18mil.
Caring Pharmacy is a retail chain established in 1994 by five pharmacists who were course mates at Universiti Sains Malaysia.
The first Caring store opened in Taman Muda, Cheras.
It was listed in 2013, back then with just 85 outlets.
Even back then, it was already one of the top three community pharmacies in Malaysia. Berjaya Group’s Tan Sri Vincent Tan had a 20.35% stake in Caring at that time, via Jitumaju Sdn Bhd. However, Jitumaju ceased to be a substantial shareholder in February this year.
The major shareholder of Caring Pharmacy is Motivasi Optima Sdn Bhd that owns 50.35% equity interest in the pharmacy chain. The shareholders of Motivasi Optima are Chan Yew Siang, Soo Chan Chiew, Tan Lee Boon and Ang Khoon Lim.
The second largest shareholder is Permodalan Nasional Bhd with 12.76% stake. RHB Research analyst Soong Wei Siang is upgrading the consumer sector to an “overweight” as he believes the sector will extend its outperformance against the broader market, in the current risk-off investment climate.
This is because the consumer sector has lower vulnerability to external and domestic risks, and offers strong earnings visibility.
“We expect consumer spending to remain resilient, with sentiment more upbeat given the various populist measures proposed by the new government,” he says.
“We turn bullish, in anticipation of robust consumer spending patterns. We forecast the sector earnings per share to grow 17% in 2019 and 14% in 2020. The broader market remains volatile and is adapting to the new political landscape while still under threat from external risks. The consumer sector offers a safe haven coupled with decent earnings growth,” he adds.
Soong’s top picks include AEON Co (M) Bhd, Padini, British American Tobacco Bhd, Mynews Holdings Bhd and NTPM Holdings Bhd.