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Puregold Price Club (PGOLD) Summary

Core Content

Puregold Price Club Inc (PGOLD) is a leading modern grocery retailer in the Philippines, operating hypermarkets, supermarkets, discounters, and S&R Membership Shopping stores. The company is currently valued at PHP43.70 per share with a target price of PHP50.00, implying a 14% upside. The target price is based on a DCF model, with an implied 2014F PER of 30.3x, PEG of 1.3x, and EV/EBITDA of 17.5x, all comparable to regional peers and large-cap consumer stocks.

Main Points

• Market Position: PGOLD is the second largest modern grocery retailer in the Philippines by retail value, with an estimated 11.7% market share in 2013.
• Store Network Expansion: The company has rapidly expanded its store network, opening 117 stores organically and acquiring 50 others since 2009. As of 9M13, it had 201 stores with a total net selling space of 341,056 sqm.
• Target Price & Valuation: Initiated at BUY with a DCF-based target price of PHP50.00, which is 14% above the current share price.
• Revenue Growth: PGOLD's net income is forecasted to grow at a 26% CAGR from 2012 to 2015F, driven by new store openings and improving margins.
• Traditional Retail Contribution: About 35% of PGOLD's revenue comes from its loyalty program, Tindahan ni Aling Puring, which serves 300,000 reseller members. Traditional retail is expected to grow at 8.1% CAGR over the next five years.
• Modern Retail Growth: Modern grocery retail is projected to grow at 8.9% CAGR until 2018F, with PGOLD aiming to expand its presence outside Metro Manila.
• Strategic Acquisitions & Partnerships: PGOLD has acquired several brands, including Parco, S&R, and Company E, and formed a joint venture with Ayala Land Inc (ALI) to develop new supermarket formats.

Key Information

Financial Highlights (2011–2015E)

Share Performance

• 52-week high/low: PHP46.50 / PHP33.75
• Free float: 42.4%
• Issued shares: 2,766 million
• Market Cap: PHP120.9B

Key Shareholders

• CO LUCIO L: 29%
• CO SUSAN P: 26%
• Capital Research & Management Co. (Gloi): 5%

Strategic Direction

PGOLD is a key player in the retail industry consolidation, leveraging both organic growth and acquisitions to expand its store network. It plans to open at least 25 new Puregold stores annually, focusing on areas outside Metro Manila where modern retail penetration is lower. The company is also expanding into the Visayas and Mindanao regions, aiming to strengthen its presence through both organic expansion and strategic acquisitions.

Economic Drivers

• Robust Domestic Demand: Consumer spending accounts for 69% of real GDP, with a 4.7% annual growth rate over the past decade.
• GDP Growth: The Philippines had the highest GDP growth in ASEAN-5 in 2013, driven by strong domestic consumption and a stable economic environment.
• Low Inflation & Interest Rates: Headline inflation is expected to ease by 2H14, while interest rates remain low, supporting consumption and investment.
• OFW Remittances: Overseas Filipino Workers (OEW) regularly remit income to the Philippines, contributing to domestic consumption.
• BPO Industry Growth: The business process outsourcing (BPO) industry is also a key contributor to economic growth and consumer spending.

9M13 Results

• Revenue Growth: Net sales increased by 32% YoY to PHP51.5b.
• Gross Margin Improvement: Gross profit rose 42% YoY to PHP8.9b, with gross margins expanding to 17.3%.
• Operating Income: Increased by 43% YoY to PHP3.6b, with operating margins expanding to 7%.
• Earnings Growth: Net income grew by 47% YoY to PHP2.6b, with 3Q13 earnings increasing by 13% to PHP869m.

Conclusion

PGOLD is well-positioned to benefit from the strong Philippine economy and growing domestic demand. Its dual focus on modern and traditional retail, supported by strategic expansion and acquisitions, is expected to drive continued revenue and earnings growth. The company's target price of PHP50.00 is justified by its strong fundamentals and growth prospects.