What You Must Know About Caring Pharmacy Group Bhd Before Investing

Caring Pharmacy Group Bhd (Caring) operates a chain of pharmacies under the brand of ‘Caring’ across main cities in Malaysia. As of 1 October 2019, Caring is worth RM 446.30 million in market capitalisation. In this article, I’ll cover on its latest financial results, growth plans and valuation figures. Thus, here are 9 key things to know about Caring before you invest.

• Store Networks
  Caring has expanded its store network from 46 in 2010 to having a total of 125 outlets in 2019.
  
  
  

Source: Caring’s IPO Prospectus and Annual Reports

• Financial Results
  Caring had achieved a CAGR of 15.0% in revenues for the last ten years, growing from RM 170.6 million in 2010 to RM 599.2 million in 2019. Its earnings had dropped in 2014 – 2016 because Caring has experienced a longer gestation period for its newer outlets to breakeven during the 3- year period. Since 2017, Caring has turnaround its profits and recorded improved earnings to RM 20.7 million in 2019.
  
  
  

Source: Caring’s IPO Prospectus and Annual Reports

• Balance Sheet Strength
  As of 31 May 2019, Caring has RM 7.77 million in non-current liabilities and RM 153.47 million in shareholders’ equity. Thus, its gearing ratio is 5.06%. At that time, Caring has RM 243.07 million in current assets and RM 121.27 million in current liabilities. Thus, its current ratio is 2.00.
  
  
  
• Cash Flow Management
  From 2014 to 2019, Caring has generated:
  
  – RM 125.2 million in positive cash flows from operations.
  – RM 11.6 million in interest income.
  – RM 43.8 million in equity raised from its IPO listing.
  
  
  Out of which, Caring has spent:
  
  – RM 35.4 million in net capital expenditures (CAPEX).
  – RM 31.6 million in dividends to its existing shareholders.
  
  
  Overall, Caring has raised its cash balance from RM 77.9 million in 2013 to RM 131.3 million in 2019. Hence, Caring has built itself a solid record of bringing in positive cash flows from operations and opted to split the proceeds half for CAPEX and dividend payments and the remaining half to be retained within its bank account during the period.
  
  
  

Source: Caring’s Annual Reports

• Major Shareholders
  On 30 August 2019, Caring’s three largest shareholders are as follows:
  
  
  

No.	Shareholders	Shareholdings (%)
1	Motivasi Optima Sdn Bhd	50.35%
2	Perbadanan Nasional Bhd	9.61%
3	Jitumaju Sdn Bhd	5.29%

Motivasi Optima Sdn Bhd (MOSB)
Chong Yeow Siang, Soo Chan Chiew, Tan Lean Boon and Ang Khoon Lim are substantial shareholders of Caring through their stakes in MOSB. As I write, they are members of the company’s board of directors.

No.	Shareholders	Leadership Position
1	Chong Yeow Siang	Managing Director
2	Soo Chan Chiew	Executive Director
3	Tan Lean Boon	Executive Director
4	Ang Khoon Lim	Non-Executive Director

Jitumaju Sdn Bhd (Jitumaju)
Tan Sri Dato’ Seri Vincent Tan Chee Yioun is a substantial shareholder of Caring with a total of 8.90% indirect shareholdings where his stakes are in Jitumaju, U Telemedia Sdn Bhd & Convenience Shopping (Sabah) Sdn Bhd presently.

• Future Prospects
  Caring is embarking on a five-year transformation plan starting in 2020, where it intends to increase its revenue from around RM 600 million in 2019 to as high as RM 1 billion by 2024. Known as Project V1B, it made plans to expand its network by 12-15 outlets a year in peripheral towns and thus, lifting its number of retail network from 125 outlets presently to as much as 200 outlets nationwide by 2024. In addition, it targets to achieve a CAGR of 5% per year in revenues for all of its matured outlets (outlets above two years in operations) over the next five years.
  
  
  
• P/E Ratio
  As of 1 October 2019, Caring is trading at RM 2.05 per share. Thus, the company has a current P/E Ratio of 21.53, based on earnings per share (EPS) 2019 of 9.51 sen. It is not meaningful to compare this figure with its past or average P/E Ratio. This is because Caring’s earnings for 2016 is significantly low which resulted in an astronomically higher P/E Ratio of 52.24 in that financial year.
  
  

Year	Closing Stock Price(RM)	Earnings per Share (EPS) (Sen)	P/E Ratio
2014	2.11	7.47	28.25
2015	1.00	5.91	16.92
2016	1.75	3.35	52.24
2017	1.81	6.03	30.02
2018	1.55	8.53	18.17
2019	1.94	9.52	20.38
1/10/2019	2.05	9.52	21.53

Source: Google Finance and Caring’s Annual Reports

• P/B Ratio
  As of 31 May 2019, Caring has net assets of RM 0.70 per share. Thus, it has a current P/B Ratio of 2.93, above its 6-year P/B Average of 2.84.
  
  
  

• Dividend Yields
  In 2019, Caring has paid out RM 0.05 in dividends per share (DPS), the highest since its IPO listing in late 2013. If Caring is able to maintain its DPS at RM 0.05 in future years to come, its dividend yield is 2.44% per annum presently. It is close to its highest dividend yield but it is below the current local fixed deposit (FD) rate of 3-4% per annum.
  
  
  

Source: Caring’s Annual Reports

VIA’s Verdict 

Caring had a slow start after it was listed on Bursa Malaysia in late 2013. This is evident as Caring has recorded a sharp fall in profits in 2014-2016 as it incurred more expenses for the setting up 20+ new outlets in Malaysia than the amount of sales growth achieved during the three-year period. 

Starting in 2017, Caring has begun to turnaround its profits for it had generated better results from its new outlets and slowed down the growth of its outlets in the last three years. Presently, it remains low-geared and had increased its cash reserves to its highest since 2014. Hence, it is positioned to take on its plans for growth over the next five years. 

Its stock price, however, has remained choppy as depicted below:

Source: Google Finance

At current price, it offers dividend yields which is below local FD rates of 3% per annum. The question remains: ‘Will you invest in Caring at RM 2.05 today?’

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