10 things we learned from the 2017 Caring Pharmacy AGM

Caring Pharmacy was established in 1994 by five pharmacists from Universiti Sains Malaysia. As the consumer awareness of community pharmacy services was still low in the 1990s, the founders’ intention was to instil the value of pharmacists in the healthcare profession by providing a one-stop centre for pharmacy services. With this concept, Caring Pharmacy quickly grew as a pharmacy community chain under the brand CARiNG Pharmacy.

In 2013, Caring Pharmacy Group Berhad (Bursa: 5245) listed on Bursa Malaysia. To date, the company has 110 outlets since its founding more than 23 years ago. Most of its outlets are located in Klang Valley, Melaka, and Johor Bahru. This year, Caring achieved a record performance for the 2017 financial year. We attended the Caring Pharmacy AGM to learn more about the company’s management and its future growth prospects.

1. Revenue increased significantly by 14% year-on-year from RM403 million in 2016 to RM460 million in 2017. Profit after tax grew tremendously by 96.3% from RM8.6 million in 2016 to RM16.8 million in 2017. The growth was mainly due to same-store sales growth from Caring’s current outlets. Caring opened eight new outlets (six complex outlets and two high street outlets) but it also closed eight under-performing outlets (three complex outlets, two high street outlets, and three outlets at Tesco Hypermarket) for the financial year. 80% of its outlets are located in urban areas. The management highlighted that its Johor Bahru outlets generated the higher revenues compared to some outlets in Klang Valley.

2. A shareholder at the Caring Pharmacy AGM asked about the total CAPEX allocated to open 10-12 outlets outside Klang Valley in 2018 and how the company was going to fund it. The management answered the estimated CAPEX is RM2.64 million and will be funded internally as it is a low amount. In comparison, Caring generated RM43 million in cash from operations in 2017.

3. Another shareholder commented that Caring has a net cash position of RM102.5 million and asked if the management had plans to use the cash to buy shophouses for their outlets instead of renting outlets in the mall. The management replied that while they are open to both options, data showed mall outlets generated higher shopper traffic. They currently don’t have any intention to buy any shophouse as they want to conserve cash for future expansion or to build another central warehouse.

4. The management declared a final single-tier dividend of three sen per share at at the Caring Pharmacy AGM. This represents RM6.53 million — a dividend payout ratio of 38.9%. Caring has a dividend polic to pay not less than 30% of their profit after tax.

(Read more: 7 quick steps to pick the best dividend stocks)

5. One shareholder asked the management to brief shareholders at the Caring Pharmacy AGM about the progress of its two new brands launched by Caring — Herbs of Gold and Linola. The management shared that Herbs of Gold is a leading Australian health supplement brand launched exclusively by the company in November 2015. The brand offers a range of 15 products from vitamins to formulations that offer specific health benefits for heartcare, women’s health, etc. They expect Herbs of Gold to contribute significantly in terms of sales and profit as consumer acceptance towards the brand has been very encouraging over the past two years. Linola is a leading German skincare brand for dry and sensitive skin conditions. Caring launched the brand in August 2017 and introduced eight products for skincare, body-care, haircare, etc. Response towards the brand is positive in its first two months of launch and the company is planning to increase the product range by another 50 products in 2018.

6. The management highlighted that its usual customer profile is urban, middle class, educated, and aged between 45 to 60 years old. However, they intend to target professionals and young parents aged between 35 to 45 years as this group has higher purchasing power. Therefore, Caring has started to increase its product range of children vitamins, nutrition formula, baby skincare, baby personal care, probiotics, and prenatal care. There has been strong double-digit growth (above 20%) for these products and a price range that has worked well for this customer group is between RM30-100.

7. The management announced at the Caring Pharmacy AGM they intend to open 10- 12 outlets in 2018, including plans to expand to the east coast of Peninsular Malaysia, Sabah, and Sarawak. Caring opened an outlet in Kuantan in September 2017 and is planning to open its first outlet in Kota Bahru in December 2017. The management indicated that they have identified a suitable location in Sabah and target to open in six months’ time.

8. The management revealed that online sales only contributed about 1% of total revenue and the response has not been encouraging so far due to a price war. Of the online revenue, 30% is contributed by Caring’s own e-store and the rest by online marketplaces like Lazada, 11 Street, and Shoppee. Prices online and offline are almost the same, but the online marketplaces have monthly promotions for different products in order to convert customers to their own e-store.

9. A shareholder asked about the management’s strategy to push online sales. Director Tan Thiam Hock explained that the company plans to fully integrate its digital platform (on all digital media from websites to mobile apps) within six months to remain competitive in their business. Besides investing significantly in system and process automation, they have built a “business intelligence” system to analyse customer profile and data. To give a seamless shopping experience, Caring has improved its “Click-and-Pick” module for the convenience of its customers. Customers can pick up their products from an outlet three days after they order to save on delivery charges if they wish to. By introducing this option, Caring hopes to attract more traffic to its outlets and increase its offline revenue.

10. Another shareholder asked about Caring’s competitive advantage and if the company had difficulty recruiting pharmacists at the moment. The management said they aim to maximise interaction between customers and merchandisers by renovating its outlets to a more modern and open store concept. In addition, Caring provides a full-time and easily accessible pharmacist counselling service 12 hours a day, seven days a week, including medical health checks, for a minimum fee. In order to build a strong sense of ownership for the pharmacist, the management shared that they have a joint venture programme with pharmacists. In the programme, pharmacists are given the opportunity to own a small stake of the outlet they are based at. The management also said they do not have any issue recruiting pharmacists as there is an oversupply of pharmacy graduates at the moment. The government has even instructed pharmacy companies to absorb as many fresh pharmacists as possible.

With additional article contributions by Mitra Chen.

Liked our analysis of the Caring Pharmacy AGM? Click here to view a complete list of AGMs we’ve attended »

Calvin Soon

Calvin Soon is a value investor and a partner of Invesmart Network PLT. Away from investing, he owns a consultancy business. Calvin believes that anybody can achieve financial independence if they use the right investment process and understand what they invest in.

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