PETALING JAYA: The impact of the increase in the minimum wage on 7-Eleven Malaysia Holdings Bhd is likely to be contained, while expansion plans for the covenience store operator remain on track thus far, according to CGS-CIMB Research.

       The research unit said it was keeping its earnings estimates for the company intact.

       Citing a briefing with the management, CGS-CIMB said 7-Eleven estimated that around 75% of its staff count would be affected by the increase in the minimum wage to RM1,500 (from RM1,200) effective May 1.

       “This could potentially result in an additional RM24mil per annum in staff costs, mostly impacting the convenience store segment, while impact to its subsidiary Caring Pharmacy Retail Management Sdn Bhd is less than RM1mil per annum.

       “However, 7-Eleven believes the impact of the minimum wage hike could be mitigated by stronger sales growth on higher footfall and longer operating hours upon economic reopening and better overall cost control,“ it added.

       As of May 22, 7-Eleven had about 700 stores operating on a 24-hour basis, it said.

       It added that 7-Eleven is also actively reviewing and adopting a more selective approach in extending the 24-hour operating hours to all stores to optimise cost efficiency as well as minimise food wastages.

       “That said, shortage of manpower is still a dampener to longer operating hours and store expansion in the near term.”

       CGS-CIMB noted that with no surprises from its first-quarter 2022 briefing, it was keeping its financial year 2022 (FY22)-FY24 estimates for 7-Eleven intact. “We reiterate ‘add’, with an unchanged target price of RM1.83.”

       It said the company’s re-rating catalysts included stronger-than-expected same-store sales growth and margin expansion from better sales mix while the downside risks were sharp increases in operating costs and lower-than-expected footfall.

       In Indonesia, 7-Eleven said it has opened two Apotek Wellings pharmacy stores in the second quarter of 2022 and plans to expand to 150 stores over the next five years.

       “We view this positively for Caring’s long-term growth prospects,” said CGS-CIMB Research.