KUALA LUMPUR: RHB Research has downgraded Caring to Sell from Neutral with a target price of RM1.27, based on 16 times FY15F P/E.
In a note on Thursday, the research house said its new P/E reflects our view on the stock’s growth for the next two years that factors in a challenging operating environment and higher earnings risk.
Caring is also at a 15% discount to its average three-year forward P/E, it said.
It noted that Caring’s 1QFY15 core earnings missed estimates for the second consecutive quarter as margins fell to their lowest level since its listing.
"We downgrade to Sell and trim target price to RM1.27 (from RM1.70), a 17.5% downside, pegged to 16 times FY15F P/E as we cut our FY15F/FY16F earnings further by 13.5%/17.4% respectively. This is inview of the increasingly challenging operating environment," it said.
It added that Caring Pharmacy’s earnings came in below its previous and consensus full year forecasts at 4.2% and 3.4% respectively.
"Revenue and net profitwere down by 0.3% and 43.4% on-quarter respectively on stiff price competition, higher personnel costs, lower advertising and promotion income, and low contributions from new outlets.
It said on-year topline improved 6.1% due to the rise in outlet numbers but net profit fell 85.7% on the aforementioned factors.
"This is Caring’s second consecutive earnings disappointment following its 4QFY14earnings announcement in July," it noted.
It said Caring’s operating environment will continue to be challenging in FY15, with intense pricing competition and increasing operational costs casting a pall over its outlook.
"However, management believes 2HFY15 will be a stronger period, as it expects positive contributions from new outlets opened in FY14 to start flowing in," it added.
In a note on Thursday, the research house said its new P/E reflects our view on the stock’s growth for the next two years that factors in a challenging operating environment and higher earnings risk.
Caring is also at a 15% discount to its average three-year forward P/E, it said.
It noted that Caring’s 1QFY15 core earnings missed estimates for the second consecutive quarter as margins fell to their lowest level since its listing.
"We downgrade to Sell and trim target price to RM1.27 (from RM1.70), a 17.5% downside, pegged to 16 times FY15F P/E as we cut our FY15F/FY16F earnings further by 13.5%/17.4% respectively. This is inview of the increasingly challenging operating environment," it said.
It added that Caring Pharmacy’s earnings came in below its previous and consensus full year forecasts at 4.2% and 3.4% respectively.
"Revenue and net profitwere down by 0.3% and 43.4% on-quarter respectively on stiff price competition, higher personnel costs, lower advertising and promotion income, and low contributions from new outlets.
It said on-year topline improved 6.1% due to the rise in outlet numbers but net profit fell 85.7% on the aforementioned factors.
"This is Caring’s second consecutive earnings disappointment following its 4QFY14earnings announcement in July," it noted.
It said Caring’s operating environment will continue to be challenging in FY15, with intense pricing competition and increasing operational costs casting a pall over its outlook.
"However, management believes 2HFY15 will be a stronger period, as it expects positive contributions from new outlets opened in FY14 to start flowing in," it added.
