AnalysisBursa

4 things I learned from the 2021 7-Eleven Malaysia EGM

In 2019, 7-Eleven Malaysia Holdings Berhad mopped up shares in Caring Pharmacy Group Berhad and a mandatory takeover offer was subsequently extended, taking it private from Bursa Malaysia.

In less than just half a year, 7-Eleven Malaysia has made another move to acquire stakes in pharmacy companies and relevant business assets in the northern part of Peninsular Malaysia.

Here are four things I learned from the 2021 7-Eleven Malaysia extraordinary general meeting:

1. The RM48.9 million worth of acquisitions consisted of the following:

  • 67% stake of The Pill House Pharmacy Sdn Bhd (TPH) at RM25.5 million at a price-to-earnings (P/E) ratio of 10.4.
  • 60% stake of Wellings Pharmacy Sdn Bhd (Wellings) at RM19.9 million at a P/E ratio of 7.2.
  • Business assets in four pharmacy outlets held by Farmasi Sri Nibong Sdn Bhd and Farmasi Sri Nibong (Pekaka) Sdn Bhd at a combind total of RM3.5 million.

These acquisitions will add another 23 and 4 pharmacy outlets to its current 144-strong Caring pharmacy outlets, under the ‘Georgetown Pharmacy’ and the ‘Wellings Pharmacy’ brand names respectively. If the acquisitions had taken place in the beginning of 2019, it is expected to boost 7-Eleven Malaysia’s earnings per share by 5.4% to 4.32 sen in 2019 on a pro forma basis.

2. CFO Wong Wai Keong responded to a few shareholder queries that the proposed acquisition allows 7-Eleven Malaysia to expand its pharmacy business into the northern part of Peninsular Malaysia, namely Perlis, Kedah, and Penang. Currently, the Caring Group is present mainly across Klang Valley, Melaka, and Johor. It has only three outlets in Penang so far and none in Kedah and Perlis.

The expansion provides 7-Eleven Malaysia with fully licensed operational pharmacies and a readily available large customer base in the north. Moving forward, 7-Eleven Malaysia plans to open 15 new pharmacy outlets annually across Malaysia.

3. Managing Director of the Caring Group, Chong Yeow Siang added that Georgetown Pharmacy and Wellings Pharmacy are dominant pharmacy players in northern Peninsular Malaysia. In addition, Wellings Pharmacy earns a big portion of its revenue from medical tourism, especially from its Indonesian customers.

The pharmacy is now affected by COVID-19-induced lockdowns. Once the pandemic is over, the model will be duplicated to other outlets to tap on the growth of medical tourism. The enlarged group can also better negotiate with suppliers for reduced costs while savings can be achieved through shared services including IT and finance.

4. A shareholder was curious to know about the rationale behind the partial acquisitions of the two pharmacies. Chong replied that the existing shareholders are still committed to run the businesses, just that they need further external support in order to be more competitive in the game.

Overall, 7-Eleven Malaysia is also satisfied with the shareholders having skin in the game to align their interests with shareholders’. The names of the two pharmacies will be maintained in the short term as they are household names in the north. Additionally, the Caring Group has the options to buy over the remaining stakes in TPH and Wellings at a P/E ratio of 10.0 five years from now based on the latest financial year results.

The fifth perspective

Prior to its privatisation by 7-Eleven Malaysia, CARiNG Pharmacy Group grew its revenue from RM364 million in 2015 to RM599 million in 2019, which translates to a compound annual growth rate of 10.5%. With 7-Eleven Malaysia’s further expansion in the pharmacy business, the new acquisitions will add more diversification to the company’s revenue and could prove to be a decent growth driver in the future.

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Shak Chee Hoi

Chee Hoi is an investor and research analyst at The Fifth Person. He was previously involved in wildlife conservation work with a non-governmental organisation as well as sustainability consultancy work. He personally believes in impacting society and the environment for the greater good.

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