Вы находитесь на странице: 1из 7

Puregold Price Club, Inc.

WED 06 DEC 2017

Reducing estimates following weak 9M17


results, but maintaining BUY
We are reducing our estimates for PGOLD following its weaker-than-expected 9M17 performance.
Recall that this was mainly due to a contraction in margins from lower discounts as well as elevated
operating expenses. In light of this, we realigned our gross margin assumptions and raised our
BUY
operating expenses forecasts. The aforementioned changes led to a 2.9%, 3.8%, and 4.0% decline in TICKER: PGOLD
our net income estimates for 2017, 2018, and 2019, respectively. This also translates into a net income
growth of 9.1%, 11.6%, and 11.8% for the said three years. With this, we cut our FV estimate by 4.1% FAIR VALUE: 58.00
to Php58.0/sh. Despite the lower forecasts and FV estimate, we are maintaining our BUY rating on CURRENT PRICE: 49.00
PGOLD as the long-term growth prospects of the company remain intact. At PGOLD’s current market UPSIDE: 18.37
value of Php49.0/sh, upside to our FV estimate also remains significant at 18.4%.

Realigning gross margins; higher S&R margins offsets cut in Puregold. We realigned our
SHARE PRICE MOVEMENT
gross margin assumption by cutting 20 bps on the Puregold segment to 15.2% and increasing
S&R’s gross margins by 80 bps to 21.8%. Our gross profit forecast was more or less unchanged as 120
the increase in S&R gross margins were able to offset the cut we made in Puregold. For Puregold,
management attributed the decline mostly to the timing of discounts and rebates, and they 110
hope to recover this in 4Q17. With this, we think the gross margin drop in 3Q17 was more of a
one-off and that margins are unlikely to decline further; hence, our flat GPM assumption for 2017
at 15.2%. On the other hand, S&R was able to maintain its gross margins for the nine months 100
at 21.8%, up 10 bps y/y. This is better than the 70 bps decline we expected, and is also better
than management’s guidance of 20.5%-21.5% for 2017 (implying a 20 to 120 bps drop in gross 90
margins). The better margins stemmed from S&R’s price increase in the second quarter.

Factoring in the higher-than-expected operating expenses. We are increasing our operating 80


6-Sep-17 6-Oct-17 6-Nov-17 6-Dec-17
expense assumption by 1.0%, 1.3%, and 1.5% in 2017, 2018, and 2019, respectively. PGOLD’s
operating expenses have grown 13.4% as of 9M17 to Php11.2Bil, slightly faster than our 11.7% PGOLD PSEi

growth forecast for 2017. In particular, manpower costs, janitorial services, and advertising and
marketing expenses have grown faster than our expectations. The faster growth continued to be
attributed to pre-operating costs incurred for opening two new S&R stores. We expect operating ABSOLUTE PERFORMANCE
expenses to continue putting pressure on S&R’s profits in the near term. Nevertheless, the impact 1M 3M YTD
of this should slowly diminish as S&R achieves better scale from its continuous store expansion.
PGOLD -4.67 0.20 25.95
PSEi -4.05 2.43 19.55
FORECAST SUMMARY

Year to December 31 (Php Mil) 2014 2015 2016 2017E 2018E 2019E
Net Sales 84,697 97,172 112,589 125,426 140,433 156,504
MARKET DATA
% change y/y 15.7 14.7 15.9 11.4 12.0 11.4
Gross Profit 14,760 16,489 18,538 20,702 23,162 25,876 Market Cap 135,503.69Mil
% change y/y 16.2 11.7 12.4 11.7 11.9 11.7
Outstanding Shares 2,765.38Mil
Gross Margin (%) 17.4 17.0 16.5 16.5 16.5 16.5
Operating Income 6,478 7,150 8,097 8,840 9,854 11,001 52 Wk Range 35.91 - 55.10
% change y/y 18.8 10.4 13.3 9.2 11.5 11.6 3Mo Ave Daily T/O 127.51Mil
Operating Margin (%) 7.6 7.4 7.2 7.0 7.02 7.03
Net Income 4,520 5,002 5,526 6,030 6,727 7,521
% change y/y 14.2 10.6 10.5 9.1 11.6 11.8
Net Profit Margin (%) 5.3 5.1 4.9 4.8 4.8 4.8
EPS 1.63 1.81 2.00 2.18 2.43 2.72
% change y/y 14.2 10.6 10.5 9.1 11.6 11.8
561 481 524 504 697 794
RELATIVE VALUE
P/E (X) 29.4 26.5 24.0 22.0 19.7 17.7 JUSTIN RICHMOND CHENG
P/BV (X) 3.9 3.5 3.1 2.8 2.5 2.2 RESEARCH ANALYST
ROE (%) 13.9 13.8 13.5 13.2 13.2 13.3 justin.cheng@colfinancial.com
Dividend Yield (%) 0.6 0.6 0.6 0.8 0.9 1.0
So urce: P GOLD, COL estimates

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of
the COL Financial website as these may be subject to tampering or unauthorized alterations.
COMPANY UPDATE I PGOLD: REDUCING ESTIMATES FOLLOWING WEAK 9M187 RESULTS, BUT MAINTAINING BUY

WED 06 DEC 2017

9M17 results underperform as margins contract

PGOLD’s 3Q17 profits only grew 2.4% y/y, bringing 9M17 profits up 7.0% y/y. This
underperformed our estimates representing only 62.8% of full-year forecasts (historically ~66%
of full year). Recall that the underperformance was on the back of a 40 bps and 60 bps drop
in gross and operating margins during the third quarter, respectively. Management corrected
its earlier statement and said that majority of the decline in gross margins was actually driven
by timing issues on discounts and rebates on the Puregold side. Meanwhile, higher operating
expenses incurred for the two new S&R stores drove the drop in operating margins.

Realigning gross margins; higher S&R margins offsets cut in


Puregold

Following the 70 bps contraction in gross margins for the Puregold segment in 3Q17 (9M17
now flat), we are cutting our gross margin assumption by 20 bps to 15.2%. Recall that of the
70 bps decline, 50 bps came from lower discounts and rebates for the quarter. Management
is hopeful in recovering this during the fourth quarter, citing that this is only a timing issue.
Meanwhile, the remaining 20 bps was due to competitive pressures from family-owned stores
on NE Bodega and Budgetlane. PGOLD intends to rebrand these stores into Puregold ones, and
that should help improve and stabilize margins going forward. Taking these into consideration,
we think the gross margin drop in 3Q17 was more of a one-off and that margins are unlikely to
decline further in 4Q17; hence, our flat GPM assumption for 2017 at 15.2%.

On the other hand, S&R was able to maintain its gross margins for the nine months at 21.8%,
up 10 bps y/y. This is better than the 70 bps decline we expected, and is also better than
management’s guidance of 20.5%-21.5% for 2017 (implying a 20 to 120 bps drop in gross
margins). The better margins stemmed from S&R’s price increase in the second quarter. This
allowed the company to shrug off a higher cost of goods driven by a weaker peso as well as
the margin pressure from having two Member’s Treat Sale this year versus only one last year. In
addition, competition from Landers has not significantly impacted S&R’s performance for the
year. In light of these, we adjust our gross margin assumption upwards by 80 bps to 21.8% in
2017 and assume a steady 21.5% margin going forward.

Following the adjustments made in our margin forecasts, the increase in S&R margins were
able to offset the cut we made in Puregold. As such, our gross profit forecast was more or less
unchanged.

Factoring in the higher-than-expected operating expenses

We are increasing our operating expense assumption by 1.0%, 1.3%, and 1.5% in 2017,
2018, and 2019, respectively. PGOLD’s operating expenses have grown 13.4% as of 9M17
to Php11.2Bil. This is slightly faster than our 11.7% growth forecast for 2017. In particular,
manpower costs, janitorial services, and advertising and marketing expenses have grown

COL Financial Group, Inc. 2


COMPANY UPDATE I PGOLD: REDUCING ESTIMATES FOLLOWING WEAK 9M187 RESULTS, BUT MAINTAINING BUY

WED 06 DEC 2017

faster than our expectations. The faster growth continued to be attributed to pre-operating
costs incurred for opening two new S&R stores. As a result, S&R’s EBITDA was down 130 bps y/y
in 9M17. We expect operating expenses to continue putting pressure on S&R’s profits in the
near term. Nevertheless, the impact of this should slowly diminish as S&R achieves better scale
from its continuous store expansion.

Exhibit 1: Summary of changes in forecast


FY17E FY18E FY19E
in PhpMil % Change % Change % Change
Old New Old New Old New
Net Sales 125,426 125,426 0.0 140,433 140,433 0.0 156,504 156,504 0.0
Gross Profit 20,748 20,702 -0.2 23,290 23,162 -0.6 26,011 25,876 -0.5
Gross Margin (%) 16.5 16.5 - 16.6 16.5 - 16.6 16.5 -
Operating Expenses 15,306 15,457 1.0 17,167 17,391 1.3 19,149 19,431 1.5
Net Income 6,213 6,030 -2.9 6,992 6,727 -3.8 7,832 7,521 -4.0
Net Margin (%) 5.0 4.8 - 5.0 4.8 - 5.0 4.8 -
FV Estimate 60.5 58.0 -4.1

Source: PGOLD, COL Estimates

Decreasing FV estimate; maintaining BUY rating

Following the changes in our gross margin and operating expense assumptions, we reduce
our 2017, 2018, and 2019 earnings forecast for PGOLD by 2.9%, 3.8%, and 4.0%, respectively.
These changes translate into a net income growth of 9.1%, 11.6%, and 11.8% for the three
years, respectively. Furthermore, the adjustments we made have led to a 4.1% decline in our
FV estimate to Php58.0/sh.

Despite the lower earnings forecast and FV estimate, we are reiterating our BUY rating on
PGOLD as the company’s positive outlook remains intact. PGOLD is still well-positioned to take
advantage of the long-term growth prospects in the retail industry. In addition, the passage
of the first package of the tax reform also serves as a positive catalyst for PGOLD. At PGOLD’s
current market value of Php49.0/sh, upside to our FV estimate also remains significant at 18.4%.

COL Financial Group, Inc. 3


COMPANY UPDATE I PGOLD: REDUCING ESTIMATES FOLLOWING WEAK 9M187 RESULTS, BUT MAINTAINING BUY

WED 06 DEC 2017

Puregold Price Club, Inc. INCOME STATEMENT (IN PHPMIL)

(PGOLD) Revenues
FY14
84,697
FY15
97,172
FY16
112,589
FY17E
125,426
FY18E
140,433
FY19E
156,504
% Growth 15.7% 14.7% 15.9% 11.4% 12.0% 11.4%
COMPANY BACKGROUND Gross Profit 14,760 16,489 18,538 20,702 23,162 25,876
PGOLD is the 2nd largest grocery retailer % Growth 16.2% 11.7% 12.4% 11.7% 11.9% 11.7%
EBITDA 7,663 8,429 9,506 10,384 11,563 12,875
in the Philippines operating hypermarkets,
% Growth 19.4% 10.0% 12.8% 9.2% 11.4% 11.3%
supermarkets, and discounters. Apart from Operating Profit 6,478 7,150 8,097 8,840 9,854 11,001
this, PGOLD also manages the operations of % Growth 18.8% 10.4% 13.3% 9.2% 11.5% 11.6%
S&R Membership Shopping in the country. In Interest Expense (47) (70) (101) (115) (115) (115)
Other Income/Expense 28 25 (78) (54) (62) (68)
2014, PGOLD started operating convenience
Pretax Income 6,458 7,105 7,917 8,670 9,677 10,818
stores after partnering (70% stake in JV) Tax Expense (1,938) (2,103) (2,391) (2,640) (2,949) (3,297)
with Japanese convenience store chain, Net Income 4,520 5,002 5,526 6,030 6,727 7,521
Lawsons, Inc. As of 2016, the company has % Growth 14.2% 10.6% 10.5% 9.1% 11.6% 11.8%
EPS 1.6 1.8 2.0 2.2 2.4 2.7
277 PGOLD branded stores mostly located in
% Growth 14.2% 10.6% 10.5% 9.1% 11.6% 11.8%
Luzon, 17 acquired grocery chains under NE
Bodega and Budgetlane, 12 S&R Membership BALANCE SHEET (IN PHPMIL)
Shopping stores, 23 S&R Pizza, and 25 Lawson FY14 FY15 FY16 FY17E FY18E FY19E
Cash & Equivalents 6,758 6,246 6,416 10,731 12,633 17,227
convenience stores.
Trade Receivables 1,946 2,683 3,881 3,952 4,232 4,717
Inventories 11,167 12,983 16,488 17,789 19,599 21,831
REVENUE BREAKDOWN Other Current Assets 610 1,102 1,017 1,413 1,578 1,754
PPE 13,132 14,034 15,712 16,619 17,361 17,938
Other Non-Current Assets 20,054 21,796 21,870 21,870 21,870 21,870
19.2% Total Assets 53,666 58,844 65,383 72,373 77,272 85,336
Accounts Payable 10,465 9,778 9,644 11,524 12,913 14,389
ST Debts 2,326 3,708 5,138 7,415 5,018 5,018
Other Current Liabilities 1,044 1,121 1,281 1,281 1,281 1,281
LT Debts 2,493 2,395 2,397 - - -
Other Non-Current Liabilities 3,105 3,429 3,750 4,055 4,441 4,853
Total Liabilities 19,433 20,430 22,210 24,275 23,652 25,541
Total Equity 34,233 38,413 43,173 48,098 53,619 59,795
80.8% Total Liabilities & Equity 53,666 58,844 65,383 72,373 77,272 85,336
BVPS 12.4 13.9 15.6 17.4 19.4 21.6

CASHFLOW STATEMENT (IN PHPMIL)

Puregold S&R FY14 FY15 FY16 FY17E FY18E FY19E


Pretax Income 6,458 7,105 7,917 8,670 9,677 10,818
Depreciation & Amortization 1,185 1,279 1,409 1,544 1,709 1,874
Other Non-Cash Exp (Gains) 527 504 604 305 386 412
Interest Expense (Income) 30 52 89 99 89 84
Decrease (Increase) in Working Cap (4,729) (5,613) (7,318) (2,626) (3,905) (4,798)
Operating Cash Flow 3,472 3,327 2,700 7,992 7,956 8,390
Capex (1,692) (2,513) (2,964) (2,451) (2,451) (2,451)
Other Investments 34 (1,742) (167) 0 0 0
Investing Cash Flow (1,658) (4,256) (3,131) (2,451) (2,451) (2,451)
Proceeds (Payment) Debts 480 1,280 1,430 (120) (2,397) 0
Payment of Cash Dividends (830) (830) (830) (1,105) (1,206) (1,345)
Others (4) (34) 0 0 0 0
Financing Cash Flow (354) 417 600 (1,225) (3,603) (1,345)
Change in Cash 1,460 (512) 169 4,315 1,901 4,594

COL Financial Group, Inc. 4


COMPANY UPDATE I PGOLD: REDUCING ESTIMATES FOLLOWING WEAK 9M187 RESULTS, BUT MAINTAINING BUY

WED 06 DEC 2017

INVESTMENT THESIS: KEY RATIOS


FY14 FY15 FY16 FY17E FY18E FY19E
Differentiated focus allows PGOLD to take
GPM (%) 17.4% 17.0% 16.5% 16.5% 16.5% 16.5%
better advantage of positive industry
EBITDA Margin (%) 9.0% 8.7% 8.4% 8.3% 8.2% 8.2%
outlook OPM (%) 7.6% 7.4% 7.2% 7.0% 7.0% 7.0%
PGOLD’s differentiated focus that captures NPM (%) 5.3% 5.1% 4.9% 4.8% 4.8% 4.8%
various income classes makes it strategically Times Interest Earned (X) 137.1 101.7 79.8 76.6 85.4 95.3
positioned to take better advantage of the Current Ratio (X) 1.5 1.6 1.7 1.7 2.0 2.2
positive industry outlook. The company has Net D/E Ratio (X) (0.1) (0.0) 0.0 (0.1) (0.1) (0.2)
Days Receivable 6.8 8.7 10.6 11.4 10.6 10.4
its Puregold branded stores catering to the
Days Inventory 53.8 54.6 57.2 59.7 58.2 57.9
middle-to-low income consumers as well
Days Payable 56.1 45.8 37.7 36.9 38.0 38.1
as the niche market of resellers or mom and Asset T/O (%) 164.0% 172.7% 181.3% 182.1% 187.7% 192.5%
pop stores. Furthermore, through its S&R ROAE (%) 13.9% 13.8% 13.5% 13.2% 13.2% 13.3%
operations the company also captures the
upper-to-middle income class consumers. MAJOR CORPORATE DEVELOPMENTS (5-YEARS)
PGOLD’s well-rounded businesses allows it
Entered into a JV for Php350Mil with Japanese convenience store chain, Lawsons,
to participate in growth of the retail industry 6/1/2014
Inc.
from different angles.

Acquisition of 9 NE Bodega stores for Php769Mil 2/1/2015


Aggressive expansion plans to drive
growth
PGOLD is not slowing down in expanding to Acquisition of 8 Budgetlane stores for Php1.5Bil 8/1/2015
underpenetrated areas as it targets to open
annually 25 Puregold branded stores, 2 S&R
warehouse stores, and 10 S&R QSR. Most of
these expansions are focused outside Metro
Manila where modern retail penetration is less
than the 29% average figure for the country.
Moreover, PGOLD is always on the lookout for
attractive acquisitions of other grocery chains
that are well-known in provincial regions.
This should boost the company’s topline and
continue to support the increase in its market
share.

COL Financial Group, Inc. 5


COMPANY UPDATE I PGOLD: REDUCING ESTIMATES FOLLOWING WEAK 9M187 RESULTS, BUT MAINTAINING BUY

WED 06 DEC 2017

Valuation RELATIVE VALUATION

Methodology 2017E
P/E
2018E 2017E
EPS Growth
2018E
CIC 26.3 22.6 -9.5% 16.3%
CNPF 20.1 18.4 4.7% 8.9%
DNL 29.2 24.9 7.2% 17.0%
EMP 16.7 16.0 -9.1% 4.3%
JFC 39.6 33.6 8.1% 17.9%
PIZZA 26.2 23.2 -43.7% 13.2%
RRHI 23.4 21.5 13.1% 8.9%
URC 26.7 26.8 -26.4% -0.3%
Industry Ave ex-PGOLD 26.0 23.4 -7.0% 10.8%
Industry Median ex-PGOLD 26.3 22.9 -2.2% 11.1%

PGOLD 22.5 20.2 12.3% 12.6%

VALUATION ASSUMPTIONS

For DCF
Risk Premium 5.0%
Risk Free Rate 5.0%
Beta 0.9
Cost of Equity 9%
Cost of Debt 4.0%
Tax Rate 30.0%
WACC 8.4%
Terminal Growth Rate 4.0%

PV (FY18E-FY22E) 25,801
PV of Terminal Value 135,217
Enterprise Value 161,018
Less: Net Debt 964
Equity Value 160,054
O/S 2,766
FV Estimate 58.00

COL Financial Group, Inc. 6


COMPANY UPDATE I PGOLD: REDUCING ESTIMATES FOLLOWING WEAK 9M187 RESULTS, BUT MAINTAINING BUY

WED 06 DEC 2017

IMPORTANT RATING DEFINITIONS


BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market in the next six to
12 months.

HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might be poor
or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the next six to twelve
months.

SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

IMPORTANT DISCLAIMER
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount invested.
Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said information may be
incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the report and are subject to change
without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial and/
or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies mentioned in this report and may trade
them in ways different from those discussed in this report.

COL RESEARCH TEAM

APRIL LYNN TAN, CFA


VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA


DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

FRANCES ROLFA NICOLAS ANDY DELA CRUZ JUSTIN RICHMOND CHENG


RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
rolfa.nicolas@colfinancial.com andy.delacruz@colfinancial.com justin.cheng@colfinancial.com

KYLE JEMMRIC VELASCO JOHN MARTIN LUCIANO ADRIAN ALEXANDER YU


RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
kyle.velasco@colfinancial.com john.luciano@colfinancial.com adrian.yu@colfinancial.com

COL FINANCIAL GROUP, INC.


2402-D EAST TOWER, PHILIPPINE STOCK EXCHANGE CENTRE,
EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
FAX NO. +632 635-4632
WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 7

Вам также может понравиться