This article first appeared in The Edge Financial Daily on May 15, 2017 - May 21, 2017

KUALA LUMPUR: Caring Pharmacy Bhd’s shares seem to have caught investors’ interest recently. On May 2, the usually subdued counter, with an average trading volume of 45,000 shares over a one-year period, saw a sudden spike in turnover to about 180,000.

The interest in the stock spilled over to the following day as volume increased further to 282,000. In tandem with the rise in volume, Caring’s share price shot up 26.35% from RM1.48 on April 28 to RM1.87 on May 3.

A large chunk of Caring’s shares is held by substantial shareholders, with the board of management holding a 50.35% stake through Motivasi Optima Sdn Bhd. Perbadanan Nasional Bhd controls another 12.76% stake, while tycoon Tan Sri Vincent Tan owns a 5.29% stake through Jitumaju Sdn Bhd.

The fresh buying interest in Caring came shortly after the retail pharmacy released its financial results for the third quarter ended Feb 28, 2017 (3QFY17) on April 28 which saw a marked improvement over the previous year.

It looks like the company’s strategies to go aggressive on promotional campaigns have paid off.

The turning point for Caring’s financials began in 2QFY17 when net profit started to show year-on-year growth.

“In view of the soft market sentiment and stiff competitive landscape, we had to adopt more aggressive strategies to stimulate consumer spending and defend market share by running attractive promotions and lowering the selling price of fast-moving merchandise,” said Caring in its 2016 annual report.

For 3QFY17, revenue improved 11.9% to RM115.66 million while net profit more than tripled to RM5.28 million from a year earlier. As for the cumulative nine months (9MFY17), revenue was up 15.7% to RM340.46 million while net profit jumped 92.7% to RM8.77 million from the previous corresponding period.

At a net profit of RM8.77 million, equivalent to 4.03 sen per share, for the cumulative nine months, it has already exceeded the full-year profit of RM8.55 million, or 3.35 sen per share, achieved in FY16.

Back-of-the-envelope calculation shows that Caring’s full-year net profit could amount to RM11.69 million on an annualised basis.

Caring attributed the higher revenue and profit to the higher sales generated from existing outlets on the back of aggressive and extensive promotional campaigns launched during the financial year.

“During the quarter under review, we established additional two complex outlets and closed down two complex outlets,” it said.

As at Feb 28, Caring had a total of 105 community pharmacies.

Besides that, Caring’s operating cash flow for 9MFY17 turned positive, at RM12.12 million from a negative operating cash flow of RM10.13 million a year ago.

The improvement in Caring’s financials in this financial year is a breath of fresh air considering that the retail pharmacy’s earnings have been on a steady decline since FY14 despite the growing revenue.

Between FY14 and FY16, revenue increased 19% to RM402.57 million from RM338.34 million. However, net profit fell 47.5% to RM8.55 million from RM16.28 million over the same period.

Same-store sales growth for Caring’s outlets which are more than two years only grew at an average of 2.2%, according to the company’s 2016 annual report.

The company conceded that while it was able to manage and execute its strategic plan, the business was mired with a host of external factors and uncertainties, like volatility of price, a weak ringgit and higher cost of living, which dented consumer confidence and reduced consumer spending power.

“We consider the short- to medium-term prospects for the retail market will remain tough and challenging.

“We are determined to retain customers’ relationship and trust during these challenging times by helping all to stretch the value of their ringgit. In the short term, we might sacrifice part of our margin, but in time, we believe our performance will improve if we can retain the loyalty of and satisfy as many customers as possible,” it said.

Caring said that it will continue to adopt a “modest yet pragmatic plan” to open 10 to 12 new outlets a year, refocusing on peripheral towns outside the Klang Valley and other major cities in Peninsular Malaysia.

The retail pharmacy is currently conducting surveys and studies in preparation for its expansion into the East Coast and Sabah and Sarawak. Currently, its stores are located mainly in the Klang Valley and in Negeri Sembilan, Johor, Melaka, Perak and Penang.

Caring’s balance sheet looks intact. It is in a net cash position of RM66.77 million after taking out the long-term loans, short-term loans and amounts due to directors. That translates into 30.7 sen per share.

“Barring any unforeseen circumstances, we shall deliver more encouraging results in the financial year to come,” said the company.

Caring’s share price closed at RM1.83 last Friday, giving a market capitalisation of RM398.4 million.