RHB Research Maintains ‘Neutral’ On Caring
RHB Research has maintained its ‘Neutral’ recommendation on Caring Pharmacy, as it expects Caring’s earnings growth to be capped by its expansion plans and operating cost pressures.
The research house noted that the firm was reviewing its expansion strategy in light of the recent FY14 earnings disappointment, as Caring admits to being too aggressive with its expansion plan post initial public offering and, therefore, expected to be more selective in opening its future new outlets.
While RHB expects Caring’s FY15 revenue to continue growing by 12.7 percent on increasing contributions from existing and stable new outlets, it expects 1H15 to be a rather muted period for the firm as it deals with spiralling operating costs.
Significance: RHB Research has issued a target price of RM1.70 for Caring, based on 18 times FY15F price to earnings (P/E), a discount to bigger healthcare stocks like KPJ Healthcare at 26 times FY15F P/E. Even though RHB expects Caring’s full-year margins to be squeezed, it says conditions are likely to improve from 2H15 onwards.
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