Saturday, 19 October 2013

Caring For You & Your Money

Another IPO queuing to be listed in Bursa on 13th November 2013 is Caring Pharmacy, which is the first retail pharmacy group listed in Bursa Malaysia.

It will offer 35 million shares at RM1.25 each to raise RM43.75 million. Its total share will be 217,706,400 and NTA 46sen per share after listing.

Caring Pharmacy started as a small retail pharmacy in Cheras in 1994. Over 20 years, it has successfully evolved into a chain of 85 communities pharmacies under the Caring brand, in which 26 are wholly-owned and 59 are partially-owned through joint venture.

Caring pharmacy is a brand well-established in the Klang Valley, but not so much outside it. Until June 2013, it has 68 pharmacies in Klang Valley.

  • Kuala Lumpur - 30
  • Selangor - 38
  • Johor - 11 (since 2008)
  • Melaka - 2 (since 2010)
  • Perak - 2 (since 2012)
  • Penang - 2 (since 2013)

Similar to other community pharmacies, Caring mainly generates its revenue from selling pharmaceutical products, health foods, personal care products, medical devices and some from distribution services. It also sells some products under its own Caring brand such as mineral water, hand/body wash, beauty accessories etc.

Caring's financial performance from 2010 to 2013 has been exceeding my own expectation. Amid intense competition, Caring still manages to record a consistent growth in both revenue and profit. Its 3-year CARG of revenue and net profit stand at 21% and 15% respectively. 

Nevertheless, the profit after tax margin is quite low (7.4% in 2013).

RM mil Revenue Net Profit
2010 170.6 13.6
2011 206.5 16.5
2012 248.3 18.3
2013 301.4 20.6
  Caring Pharmacy Financial Results

After listing, the EPS for 2013 is estimated to be 9.5sen, giving it a PE ratio of 13.2x at IPO price of RM1.25.

Before IPO, Caring has a cash & equivalents of RM40.4 million while the total borrowings are only RM14.9 million. Its balance sheet is deemed healthy.

Caring has a dividend payout policy of at least 30% of its net profit. If we use the net profit of RM20.6mil in 2013 and IPO price of RM1.25, its dividend yield will be at least 3%.

Base on past financial results, Caring may be able to carry its growth momentum for a period of time. However, immense competition is the key problem in the future.

Though currently Malaysia has 2,205 retail pharmacies, it is growing at a slow 4.3% CAGR from 2008 to 2012. This may give chance to Caring to expand at greater pace.

Nevertheless, there are a few big groups who are already targeting the cake of retail pharmacy business, such as Cosway and BP Healthcare. There are also some small pharmacy chain stores which flourish locally and it is not easy for Caring to penetrate their market.

       Cosway: going aggressive

In shopping malls and hypermarkets where most Caring pharmacies are found, there are surely other competitors like Guardian, Watson, Aeon Wellness, Apex etc.

If Caring Pharmacy want to do well in the future, then it must survive in the highly competitive environment. This is why it is planning to be listed publicly. Besides obtaining the necessary fund, it can help to lift Caring brand name to another level.

Without doubt, this is a bad news for individual-owned retail pharmacy stores.

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