KUALA LUMPUR (Jan 7): 7-Eleven Malaysia Holdings Bhd's (KL:SEM) earnings growth will slow over the next three years amid rising costs, CGS International flagged as it turned bearish on the stock.

An effort to refurbish 200 classic stores into 7Café format and the addition of 100 new outlets will raise selling and distribution costs as well as depreciation charges over 2026-2028, the research house said and downgraded its recommendation for the stock to ‘reduce’ from ‘hold’.

“We think that the market has not priced in the slowdown in its earnings growth trajectory,” CGS International said in a note.

Following the rating cut, 7-Eleven Malaysia now has a unanimous ‘sell’ call from all three research houses covering it. Its shares barely budged in 2025 even as the convenience store operator faced intense competition from rivals such as FamilyMart of Japan.

The market has also seen proliferation of rivals, including South Korea's CU and emart24 as well as home-grown brands like Mix Store and BilaBila Mart. 7-Eleven Malaysia’s revenue per store each quarter has also consistently lagged that of MyNews Holdings Bhd (KL:MYNEWS).

“We see its efforts to roll out more 7Cafés, which record 50% more sales than classic stores, as a way to close its revenue-per-store gap with its peers,” CGS International said.

While faster roll-outs will lift revenue, the increased operating costs and depreciation incurred form a “significant drag” on its core earnings and free cash flow as the new store format takes time to ramp up, the research house said.

Further, 7-Eleven Malaysia’s valuation remains “stretched” at 40 times the projected earnings for this year when compared to peers’ average of 14 to 22 times, the house added.