7-ELEVEN MALAYSIA HOLDINGS BHD

Target price: RM1.34

ANALYSTS attended 7-Eleven’s third quarter review were not surprised by the results, with key discussions on how to improve margins through a better product mix.

Up to end-third quarter 2018, 7-Eleven had added 34 new stores and refurbished 113 existing stores.

“We gather that the slower pace of new store openings was due to logistics issues it faced in the first half of 2018.

“Moving forward, we understand that the company will take a more aggressive stance in opening new outlets, as all the logistics issues have been resolved since the beginning of the third quarter,” CGSCIMB said.

The group will continue refurbishing existing stores in a bid to refresh its store appeal and to provide consumers with a better shopping experience.

7-Eleven also aims to grow sales from the fresh-food segment and plans to improve its product offerings through various initiatives by continuing to secure exclusive items for its outlets, such as “Pepsi Retro” and “Maggie pedas giler”.

The group is rationalising its units to prevent product overlap and to have sufficient space to offer a wider product range.

CGS-CIMB is positive on 7-Eleven’s plans to grow its fresh food sales (higher margins) through better collaboration with Café de Coral, which is mainly done through the development of more food produce and increased logistics reach beyond the current 400 outlets in the Klang Valley, Genting Highlands and Melaka.

“7-Eleven could possibly set up its own centralised kitchen or work with another partner with larger facilities,” it said.

CGS-CIMB has maintained its “hold” call with an unchanged forecast end-2019 target price of RM1.34. The target price is based on forecast calendar year 2020 target multiple price/earnings of 24 times, which is in line with the regional peer average.

“At this juncture, we believe that current valuations have priced in its improved prospects and ongoing long-term cost-saving initiatives,” it said.

Some upside/downside risks to the call would include faster/slower-than-expected recovery in domestic consumer spending and more/less effective rollout of its cost-saving programme.