KUALA LUMPUR: The disposal of Caring Pharmacy is value-dilutive but earnings neutral for 7-Eleven Malaysia Holdings Bhd, according to Maybank Investment Bank Bhd (Maybank IB) Research.

The research unit said the deal is considered earnings neutral assuming interest cost savings rate of three per cent and after stripping out Caring's estimated net profit contribution to the group.

"Recall that Caring's first quarter of 2023 (1Q23) earnings contribution to 7-Eleven Malaysia has significantly fallen year-on-year (YoY) as sales volume normalises post-pandemic. 

7-Eleven is expected to turn a net cash position on completion of the disposal. The company had a net gearing of 2.9 times net gearing as at end-1Q23.

7-Eleven Malaysia announced that it has received a binding term sheet from BIG Pharmacy Healthcare (BPH) to acquire its entire 75 per cent equity stake in Caring Pharmacy Group, which owns and operates retail pharmacy brands CARiNG, Georgetown & Wellings, for RM637.5 million. 

The proposed disposal is subject to shareholders' approval.

Caring's pharmacy business in Indonesia will be carved out of the proposed acquisition by BPH.

Maybank IB Research has kept its earnings estimates and target price of RM1.90 for 7-Eleven Malaysia, pending the completion of the disposal.

It also believes that the run up in share price has been overdone, hence the investment bank has downgraded 7-Eleven Malaysia to "Sell" rating. 

Meanwhile, Maybank IB said even though 7-Eleven Malaysia has not shared its plans on the utilisation of disposal proceeds, it expects 7-Eleven Malaysia to put heightened focus on its convenience store business.

It said it is expected to convert more existing 7-11 outlets to 7-café formats to unlock better store product mix and higher footfall from its fresh food offerings.

There are approximately 138 7-Café stores as at the end of May 2023.  7-Eleven Malaysia targets to open 50 new seven café stores and refurbish 122 existing stores into 7 café formats in the financial year 2023 (FY23).