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Philippines Consumer Sector Summary

Core Content

The Philippine consumer sector is currently OVERWEIGHT, with analysts Lovell Sarreal and Jaclyn Jimenez highlighting its strong growth potential. The sector is driven by a favorable economic environment, robust domestic demand, and a young, growing population. Leading consumer companies, particularly retailers, are expanding aggressively both within Metro Manila and in provincial areas to capture sustainable growth opportunities.

Main Points

• Consumer Sector Growth:

  • The sector is expected to grow sustainably due to the country's attractive demographics and vibrant economy.
  • Private consumption accounts for a significant portion of GDP, with a 72% share in 2014.
  • Real private consumption expenditures (PCE) have grown at an average of 4% annually over the past decade.
  • Rising disposable incomes and increasing affluence are leading Filipino consumers to upgrade their purchasing behavior.

• Retail Expansion:

  • Major retailers such as SM Retail, PGOLD, and RRHI are expanding aggressively, especially in provincial areas.
  • These retailers are focusing on new formats, store roll-outs, and acquisitions to consolidate the retail market.
  • Modern trade penetration is currently low in the provinces, with only 25% for grocery retailing and less than 50% in most regions.
  • Expansion into provincial areas is crucial to capture the growing middle class and urbanization trends.

• Consumer Companies Leading the Way:

  • URC (Universal Robina Corp) is expanding its portfolio with premium brands and products to cater to the evolving consumer preferences.
  • JFC (Jollibee Foods Corp) is a first mover in provincial expansion, having opened stores early and reaping the benefits.
  • PGOLD and RRHI are also expanding in the provinces to maintain market share and compete with traditional retail formats.

• Economic Drivers:

  • The Philippine economy grew at 6.1% GDP in 2014, the highest in Asia, driven by robust domestic demand.
  • The country has a population of ~100 million, with an average age of 23, and is expected to grow at 1.7% annually.
  • Urbanization and the growth of the BPO (Business Process Outsourcing) industry are contributing to increased consumer spending and convenience store demand.

• Market Structure:

  • The retailing industry is dominated by store-based retailers, with close to 1 million outlets across the country.
  • SM Retail leads the market with PHP195b in net sales in 2014, followed by PGOLD (PHP85b) and RRHI (PHP80b).
  • Retailers are investing in convenience stores and mini-marts, with SEVN (Philippine Seven Corp) and Ministop being the major players in the convenience store segment.

• Competitive Landscape:

  • The convenience store segment is becoming more competitive, with new entrants such as Family Mart (via a 50-50 JV between ALI and SSI) and Lawson (via a 70-30 JV with PGOLD).
  • SM Retail has also started expanding with Alfamart (mini-marts) to cater to different consumer needs.

• Investment Recommendations:

  • The report recommends BUY ratings for URC, JFC, EMP, RRHI, PGOLD, RFM, and CIC.
  • HOLD ratings are given to DNL and PIP.
  • The sector is viewed as a key beneficiary of the country's economic growth and demographic trends.

Key Information

• Market Penetration:

  • Modern trade penetration is low in the provinces, with only 25% for grocery retailing and less than 50% in Metro Manila.
  • The focus on provincial expansion is expected to increase as the middle class and urbanization trends grow.

• Consumer Behavior:

  • Filipino consumers are becoming more affluent and are spending more on premium products.
  • Evidence of this includes growth in vehicle sales, travel, and the adoption of international brands like Starbucks and Zara.

• Financial Metrics:

  • Key companies such as JFC, PGOLD, and RRHI are showing strong growth in revenue and net income.
  • URC has a large market cap (PHP8,871m) and is expanding with strategic acquisitions and partnerships.

• Future Outlook:

  • The retail and consumer sector is expected to continue its expansion, driven by urbanization, rising incomes, and increasing consumer demand.
  • The government's fiscal consolidation has provided resources to invest in infrastructure, further supporting economic growth.

Summary Table

Conclusion

The Philippine consumer sector is well-positioned for continued growth due to its favorable demographics, rising affluence, and expanding retail and food service networks. Leading retailers and food companies are expanding aggressively into provincial areas, which offer significant untapped potential. With strong financial performance and strategic initiatives, the sector is expected to benefit from the country's robust economy and increasing consumer spending.