The stock price already reflects the outlook, and the convenience store sector is overvalued

(KUALA LUMPUR, 18th) The convenience store sector in China has flourished in recent years, and the growth prospects are bright, but analysts have maintained a “neutral” rating considering that valuations have become expensive.

According to CIMB Research in the latest report, China's convenience store sector is dominated by large convenience store brands. At the same time, there are also many small chain stores and independent stores operating locally in various states participating.

Analysts explained that these stores classified in the convenience store sector all have remarkable characteristics, that is, compared with other retailers such as supermarkets and mini supermarkets, they have longer business hours to meet the needs of consumers at any time.

In terms of number of stores, the 7-Eleven convenience store is still the leader, operating 2,581 stores.

With the rapid development of the convenience store sector, competition among companies has intensified, and a key innovation initiative has been adopted, which focuses on the supply of fresh food with a higher profit margin, with a total revenue of about 35%, to boost revenue and profit growth.

According to analysts' observations, among the convenience stores tracked, fresh food sales accounted for about 30% to 50% of the revenue of stores that mainly focus on this, but only 5% to 10% of the revenue of traditional stores.

Looking ahead, analysts believe that with the trend of urbanization in China and the increase in disposable income, people's demand for convenience continues to increase, and major convenience store chains are promoting the expansion of healthy new stores one after another, and the growth prospects for this sector are bright.

According to information, 7-Eleven convenience stores, Mynews convenience stores, and Family Mart (Family Mart) plan to add 60 to 100 new stores in the 2024 fiscal year, with a year-on-year increase of between 4% and 16%.

Consulting firm Frost & Sullivan predicts that between 2023 and 2027, the convenience store sector will have an average compound annual growth rate (CAGR) of 13.4%, while for other retail sectors, mainly groceries, the growth rate will be between 3.2 and 5.3%.

Furthermore, analysts expect that the third account of the Provident Fund Administration and salary increases for civil servants starting in December will further boost consumer spending in the short term.

Although the outlook is quite optimistic, analysts believe that these companies that operate convenience stores are already highly valued and may already reflect the expected growth potential.