KUCHING: The ready meal/fresh food market segment is relatively under-developed in Malaysia compared to countries such as Thailand and Singapore as analysts peg this to be due to both supply and demand issues.
The research arm of Maybank Investment Bank Bhd (Maybank IB Research) highlighted that coming from a low base and with stepped up efforts to market ready meals by both the suppliers and convenience stores, there is much room for growth in this food and beverage (F&B) segment.
“According to Euromonitor, Malaysia’s ready meal market grew from RM105 million in 2010 to RM125 million in 2015, posting a compound annual growth rate (CAGR) of 3.6 per cent,” it said in a sector analysis recently.
“In comparison, Thailand’s ready meal market grew at a much faster pace, with a CAGR of 13 per cent, driven by shifting consumer habits towards greater convenience and the emergence of top convenience players that has increased the availability of ready meals.
“This does imply that there is still much room for the ready meal market to grow domestically, but this has to be driven by increased offerings by the incumbent and upcoming operators of convenience stores,” it said.
As F&B generally carries better margins relative to other offerings in a convenience store, Maybank IB Research believed a push up the value chain towards F&B will assist with incremental expansion in margins.
The research arm noted that 7-Eleven Malaysia Holdings Bhd (SEM) is now in collaboration (since April 2016) with Brahim’s Holdings Bhd (Brahim’s) SATS Food Services (BSFS) on fresh food and ready meals.
“BSFS supplies the menu and products to be marketed through SEM’s outletswhile SEM will provide a centralised distribution centre to handle product delivery. BSFS’s products can now be found in over 200 of SEM’s stores (mainly in Klang Valley),” the research arm said.
As for Bison Consolidated Bhd (Bison), the research arm said that plans are underway to construct the group’s food processing and distribution facility and this is targeted to be completed by financial year 2018 (FY18).
“While in the medium term, the food supply chain may be enhanced (on increasing availability), earnings enhancement for convenience store players would depend on their product offerings and consumers’ shifting preference for their potential offerings,” the research arm said.
Maybank IB Research stressed that convenience stores will need to be more innovative in terms of product offerings to create a differentiating factor between them.
“As suggested by Euromonitor’s finding, consumers in Malaysia generally perceive that ready meals contain unhealthy ingredients and preservatives.
“In that, convenience store players may begin to introduce healthier product variants,” it said.
The research arm added that players are also expected to come up with more creative marketing efforts to both educate consumers and drive sales. Overall, Maybank IB Research left its ‘Neutral’ on the convenience retail sector sector unchanged.
Maybank IB Research also maintained its ‘hold’ call on SEM but with a higher target price of RM1.54 per share (up 16sen), pegged to a higher 27.5-fold price earnings ratio (PER) current year 2017 (CY17) (25-fold previously) to reflect the current valuations of its regional convenience store peers.
“Much of the positives are reflected in its current share price,” the research arm said.
On the other hand, Maybank IB Research remained positive on Bison. While Bison is smaller in terms of store count versus market leader SEM in Malaysia, the research arm believed that the group offers a much stronger growth profile, coming from a lower base.
Maybank IB Research noted that Bison has also consistently delivered higher net margins in the past three years (three-year average of 6.8 per cent versus SEM’s three-year average of 2.9 per cent) mainly on better cost controls (such as admin and sales and distribution (S&D) expenses) and higher contribution of A&P income as a per cent of revenue.
As such, Bison remained a ‘buy’ for the research arm, with a target price of RM2.05 per share, pegged to CY17 PER of 25-fold, which is about a 10 per cent discount to SEM and its regional convenience store peers, to reflect its smaller market capitalisation.