KUALA LUMPUR (Nov 11): Big Caring Group Bhd could see its already steep listing price soar higher, though longer-term value hinges on its expansion beyond retail, an analyst said.
Leadership in a fragmented industry, robust short-term growth, and strong institutional investors demand are setting up the multi-brand pharmacy chain for premium valuations post-listing, BIMB Securities said in an initiation note that recommends investors to buy the stock.
With cornerstone investors taking up a massive chunk of the shares, “we anticipate post-listing demand for the stock should be supportive of expanding valuations,” the house said.
Big Caring, which operates the BIG Pharmacy and CARiNG Pharmacy chains, priced its initial public offering (IPO) at RM1.08 per share, valuing the company at 42 times its trailing earnings. The IPO is backed by 19 cornerstone investors that subscribed for 41% of the institutional offering.
Cornerstone investors — typically large institutional investors such as pension funds and insurers — commit to a portion of IPO shares before they are marketed to other retail and institutional investors. Their presence helps to build up other investors’ confidence to invest in the IPO.
However, the steep price makes Big Caring a better fit for investors willing to hold the stock for two to three years until earnings catch up with valuations, BIMB Securities said, noting that earnings multiple will then ease to a more reasonable level of around 20 times.
BIMB Securities’ target price is RM1.30, valuing Big Caring at 31 times its forward earnings, but flagged that RM1.60 would be “a good level to take profit.”
By the financial year ending June 2029, the company could make a net profit of RM404 million for an annual average growth of 19%, marking peak organic growth, BIMB Securities’ forecasts show. Beyond it, Big Caring will need higher sales from each store, or make acquisitions, the house said.
Detailed market study estimates another 166 high- and medium-confidence stores that Big Caring can open, which is “decent, but not a particularly high ceiling,” BIMB Securities said. The company has 668 outlets as of September-end.
Further growth will require Big Caring to “demonstrate its ability to strategically pivot to a broader healthcare play,” the house added.