SEM’s 1Q within expectations, unhindered by MCO
KUCHING: 7-Eleven Malaysia Holdings Bhd’s (SEM) first quarter of the financial year 2020 (1QFY20) results were deemed within expectations, with its operations mostly uninterrupted by the Movement Control Order (MCO).
According to the research team at Kenanga Investment Bank Bhd (Kenanga Research), SEM’s 1QFY20 core net profit (CNP) of RM17.3 million (up 55 per cent year-on-year, up 52 per cent quarter-on-quarter) was generally within its full-year estimates.
However, it expected SEM’s 2QFY20 to be generally slower with the prolonged MCO and Ramadan month.
It noted that the CNP excluded a one-off recognition of RM5.9m due to a corporate exercise in acquiring Caring Pharmacy Group Bhd.
It highlighted that SEM’s 1QFY20 CNP soared 55 per cent y-o-y, 52 per cent q-o-q boosted by stronger turnover (up six per cent y-o-y, up five per cent q-oq) on higher stores base of 2,419 (up five per cent y-o-y, 26 stores closed, 34 new stores opened since January 2020) from better consumer promotion activity, and expanded profit before tax (PBT) margin to 3.2 per cent from 2.8 per cent in 1QFY19, and 2.7 per cent in 4QFY19 mainly from highmargin segment of fresh food (up 13 per cent y-o-y) and tobacco (up seven per cent y-o-y) during MCO.
SEM stores (except for those in malls) remained operational during MCO period being categorised as essential services.
All these more than offset contraction in same store sales growth ( SSSG) at 1.9 per cent (1QFY19 SSSG: 6.1 per cent) due to some stores closures during MCO, higher effective tax rate of 42.4 per cent (1QFY19: 30.7 per cent), and higher operating expenses in line with higher number of stores, it pointed out.
Looking ahead, Kenanga Research said: “The group noted that they have the capacity to open up to 200 new stores yearly.
Besides stores expansion, the group has been working towards an overhaul of its stores operation and end-to-end supply chain operation.”
Nevertheless, it believed that the group is facing stiff competition from new players which are revolutionising the high-margin fresh-food space, which is challenging its sales growth.
Its wholly-owned Convenience
Shopping ( Sabah) SB ( CSSSB), and related person in concert (PAC) has acquired Caring Pharmacy Group Bhd (at offer price of RM2.60, to be fully completed in 2QCY20) which had been delisted on May 8, 2020. SEM noted that post-takeover, both stores operations would be operating as usual as there is no additional synergy in combining them.
All in, Kenanga Research maintained its ‘market perform’ call on the stock.