20151124-Maybank_KERPL-Margin_pressure_likely_to_persist_13页_553kb

Robinsons Retail Holdings (RRHI PM) Summary

Core Content

Robinsons Retail Holdings (RRHI PM) is a Philippine retail company with a current share price of PHP70.10 and a target price of PHP79.00 (+13%). The company has a market capitalization of PHP95.8B and an average daily turnover of USD1.1M. The company is currently under a BUY rating, with no change in recommendation.

Key Financial Highlights

• 9M15 Net Income: Increased by 27% to PHP2.97B, driven by investment income.
• 3Q15 Net Income: Rose 13.4% YoY to PHP1.1B, contributing to the 9M15 growth.
• Net Sales: Grew 12.7% to PHP63.3B in 9M15, with same-store sales growth (SSSG) accelerating to 5.6% in 3Q15.
• Gross Profit: Increased 13.9% to PHP13.8B, with GPM expanding by 25bps to 21.8%.
• EBITDA: Grew 11.7% to PHP4.3B in 9M15, with EBITDA margin at 6.8%.
• Net Profit: Increased 26.7% to PHP2.97B in 9M15, with a net profit margin of 4.7%.
• Cash and Financial Assets: Reached PHP25.4B as of end-September 2015.

Store Network and Growth

• Total Stores (as of end-9M15): 1,466 stores with a GFA of 939k sqm.
• Net Store Additions: 139 stores, including 25 stores from the acquisition of Saver's Appliance Depot.
• Segment Store Count:
  • Supermarkets: 117 stores, 34% of total GFA.
  • Department Stores: 41 stores.
  • DIY Stores: 162 stores.
  • Convenience Stores: 511 stores.
  • Drug Stores: 354 stores.
  • Specialty Stores: 281 stores.

2016 Guidance

• Revenue Growth: Expected to be 2-3% SSSG and low to mid-teen increase in total revenue.
• Store Additions: 150-200 new stores.
• GPM Expansion: Expected to increase by 20-40bps due to bigger store formats.
• Capex: PHP6B for 2016, with GFA forecasted at 977k sqm and 1.08m sqm for the following year.
• Target Price: Revised to PHP79.00, or 11.3x EV/EBITDA, in line with the regional average for retailers in 2016.

Segment Performance

• Supermarkets:
  • Net Sales: PHP30.8B (up 10% YoY).
  • SSSG: 6% as of October.
  • Gross Margin: Improved to 19%.
  • EBITDA: Grew 17.7% to PHP2.2B.
• Department Stores:
  • Net Sales: PHP9.8B (up 9.6% YoY).
  • SSSG: Strengthened to 7.9% in 3Q15.
  • EBITDA: Grew 10.4% to PHP705M.
• DIY Segment:
  • Net Sales: PHP7.1B (up 18.5% YoY).
  • SSSG: 4.9% in 9M15.
  • EBITDA: Grew 4.7% to PHP678M.
• Convenience Stores:
  • Net Sales: PHP4B (up 20.5% YoY).
  • SSSG: 6.7% in 3Q15.
  • EBITDA: Declined 11.7% to PHP190M.
• Drug Stores:
  • Net Sales: PHP5.9B (up 12.9% YoY).
  • SSSG: 1.9% in 9M15.
  • EBITDA: Grew 12.3% to PHP274M.
• Specialty Stores:
  • Net Sales: PHP5.7B (up 19.1% YoY).
  • SSSG: 10.6% in 3Q15.
  • EBITDA: Grew 9.8% to PHP291M.

Valuation and Metrics

• P/E Ratio: 23.5x for FY15E, decreasing to 18.7x for FY17E.
• P/BV Ratio: 2.3x for FY15E, decreasing to 1.9x for FY17E.
• EV/EBITDA: 10.7x for FY15E, decreasing to 8.3x for FY17E.
• Net Dividend Yield: Increased from 0.0% to 0.9%.
• FCF Yield: Expected to rise to 3.3% in FY17E.
• ROAE: Expected to increase to 10.6% in FY17E.
• ROAA: Expected to increase to 7.1% in FY17E.

Outlook and Recommendations

• Margin Pressure: Likely to persist due to larger store formats which take longer to ramp up sales.
• Target Price Cut: Reduced by 7% to PHP79.00 or 11.3x EV/EBITDA.
• Upside Potential: Still attractive at >10%.
• BUY Rating: Maintained despite the target price cut.

Comparative Valuation

• Overall Average:
  • P/E: 23.0x for FY15E, decreasing to 20.0x for FY17E.
  • EV/EBITDA: 12.7x for FY15E, decreasing to 11.3x for FY16E.
  • EPS Growth: Expected to be 6.6% for FY15E and 13.7% for FY17E.

Summary of Key Changes

• Net Sales: Revised 0.6% for FY15E and 0.3% for FY16E.
• Cost of Merchandise Sold: Revised 1.1% for FY15E and 0.8% for FY16E.
• Gross Profit: Revised -0.9% for FY15E and -1.5% for FY16E.
• EBITDA: Revised -3.2% for FY15E and -7.8% for FY16E.
• Net Income: Revised -5.0% for FY15E and -7.4% for FY16E.

Key Assumptions and Acquisitions

• Store Additions: Expected to be 150-200 for 2016, with bigger store formats driving GFA increase.
• Acquisitions: Continued focus on potential acquisitions, such as Saver's Appliance Depot in September 2015.
• Capex: PHP6B for 2016, with PHP990M allocated to the acquisition of Saver's.

Conclusion

Robinsons Retail Holdings continues to show positive growth in net sales and net income, although margin pressure is expected to persist. The company's BUY rating is maintained, with a target price of PHP79.00. The segment performance is mixed, with supermarkets and DIY leading the growth, while convenience stores and specialty stores show improved SSSG and EBITDA. The valuation metrics suggest attractive upside potential, with the EV/EBITDA ratio aligning with regional averages. The company is expanding its store network and focusing on larger formats to increase GFA and improve profitability.