IPO Kenanga gives Caring Pharmacy target price of RM1.55

by **Cals** Tue 22 Oct 2013, 12:10

IPO Kenanga gives Caring Pharmacy target price of RM1.55

Business & Markets 2013

Written by Cynthia Blemin of theedgemalaysia.com

Tuesday, 22 October 2013 11:32

KUALA LUMPUR (Oct 22): Kenanga Research has issued a non-rated call on Caring Pharmacy Group at a target price of RM1.55, and said the group is poised to attract keen market interest being the only listed community pharmacy operator in the country.

With the lion’s share of community pharmacy in Malaysia, it is slated to be listed on the main market of Bursa Malaysia on November 13, 2013, said the research house in a note today. It presently has 85 outlets nationwide operated under the brand “CARiNG”.

“We consider Caring’s business model to be asset light.

“This is simply because the community pharmacy business model is relatively capital light and involves only minimal capex to open shop,” it said.

Based on the number of community pharmacy outlets, Caring is ranked among the top three community pharmacy operators in Malaysia as at June 2013, it added.

The research house expects capex p.a. to be minimal considering that it only requires an average of RM0.7 million to start up (including fixtures and working capital) a new community pharmacy, it said.

Based on its forecast, it opined that Caring’s strong average cashflow from operations of RM28 million p.a. over the next two years support management guidance of a dividend payout ratio of not less than 30%.

Kenanga Research also expects Caring to register net profit of RM23.8 million and RM27.4 million in FY14 and FY15, respectively.

The research house has conservatively forecast a 17% revenue growth each in FY14 and FY15, which is lower than the past three years average of 20% on the back of same-store-sales growth and opening of new outlets, it noted.

Based on earnings estimate and a 30% dividend payout assumption, it expects FY14 and FY15 net DPS of 3.3 sen and 3.8 sen respectively, translating to an average yield of 3%, it said.

Its indicative fair value of RM1.55 is based on 13x CY14 EPS of 11.9 sen, it added.

Moving ahead, the research house said the group plans to establish additional 30-35 new community pharmacies in Malaysia between FY14 and FY16.

It also intends to renovate its new head office and warehouse to cater to the group’s expanding operations, it added.

Typically, the initial contribution of a new outlet in the first year of operation is not significant but payback period is more than 12 months, it noted.