[MARC] MARC Ratings affirms AA- rating on 7-Eleven Holdings’ MTN programme

MARC Ratings has affirmed its AA- rating on 7-Eleven Malaysia Holdings Berhad’s (7-Eleven Holdings) RM600.0 million Medium-Term Notes (MTN) Programme with a stable outlook.

7-Eleven Holdings’ established market position, strong financial performance and long operating track record in the convenience store segment remain key rating drivers. The rating has incorporated the strong growth prospects of its pharmacy retail segment. The key factors moderating the rating are thin operating margins and keen competition in both segments that has led to continued investments to maintain brand prominence. Its convenience store and pharmacy retail operations are undertaken by wholly-owned subsidiary 7-Eleven Malaysia Sdn Bhd and 75% indirect subsidiary Caring Pharmacy Group Berhad. 7-Eleven Malaysia operates under a long-term exclusive license from the US-based 7-Eleven Inc. that expires in 2033.

The “7-Eleven” franchise is well entrenched nationwide, with a store strength of 2,472 as at end-2022, a net increase of 45 stores from the previous year with a planned net increase of 70 stores by end-2023. MARC Ratings opines that the group’s extensive store reach, its upgrades and new store openings as well as continuing efforts to keep pace with changing consumer trends have been key to improving its performance. This has been evident in the rollout of the 7-Café format store in 4Q2021, which has grown to 88 stores as at end-2022 and is projected to further expand to 238 stores by end-2023; the 7-Café format stores carry a range of in-house ready-to-eat food and beverages, and generated 1.8x sales of its standard format stores in 2022.

Caring Pharmacy which operates under the “Caring”, “Wellings” and “Georgetown” brands is one of the largest pharmacy retail chains domestically with 220 stores as at end-2022, up by 29 stores from the prior year, with plans to open an additional 42 by end-2023. It has also opened 14 stores under the “Wellings” brand in Greater Jakarta, Indonesia, in 2022 with plans afoot for another three stores. Its pharmacy retail segment will benefit from the growing ageing population — 65 years and above — in Malaysia and Indonesia that has increased to around 7% from around 5%-6% of the total population over the last decade.

Group revenue and operating profit increased by 34.0% and 36.4% y-o-y to RM3.8 billion and RM209.9 million in 2022; its pharmacy operations accounted for around 34% of group revenue and operating profit. The improved performance was also supported by recovery in operating hours as pandemic restrictions were lifted. Group operating profit margin remained thin but stable at around 5.6%, supported by cost management initiatives which reduced the impact from the increase in minimum wage in May 2022. Operating profit before interest, tax, depreciation, and amortisation interest coverage was healthy at around 6x in 2022.

7-Eleven Holdings’ near-term capex requirement of RM25.6 million earmarked for pharmacy and RM236.7 million for convenience store expansions to be funded mainly by internally generated cash. As at end-2022, group borrowings stood at RM721.0 million, increasing by around RM100 million from the prior year on issuance under the rated MTN programme. Consolidated debt-to-equity ratio rose marginally to 0.46x from 0.42x (on excluding reorganisation deficit of RM1.3 billion).

Umar Abdul Aziz, +603-2717 2962/ umar@marc.com.my
Cyndy Goh, +603-2717 2941/ cyndy@marc.com.my
Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my