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Daily Edge Summary - 4 April 2014

Core Content

This report provides an overview of financial performance and market insights for several companies in the Philippines, with a focus on Puregold Price Club Inc (PGOLD) and other key players in the consumer and financial sectors.

Key Financial Highlights

PGOLD (PHP46.50)

• 2013 Performance:
  • Net sales increased by 27% to PHP73.2 billion.
  • Net income rose by 46% to PHP4 billion, slightly exceeding expectations.
  • Net margin improved by 68 bps to 5.4%.
  • 4Q13 earnings increased by 44% YoY to PHP1.3 billion.
• 2014 Guidance:
  • Target for 20% top-line growth, leading to PHP87.8 billion in net sales.
  • Aims to sustain 2013 net margin levels.
  • Anticipated mid-single-digit same-store sales growth (SSSG) for Puregold in 1Q14.
  • PGOLD's store network expanded to 213 stores with a net selling area up 20% to 370,000 sqm.
• Growth Drivers:
  • Opening of 40 new Puregold and 2 new S&R stores.
  • Acquisition of 15 Company E supermarkets in 1Q13.
  • Full-year operations of 6 S&R and 19 Parco stores.
• Margin Improvement:
  • Consolidated gross margin increased by 132 bps to 17.4%.
  • Operating margin improved by 76 bps to 7.5%.
  • EBIT increased by 39% to PHP1.9 billion in 4Q13.

Market Insights

Consumer Sector

• URC (Universal Robina Corp):
  • Confirmed investment of USD30 million in Myanmar to establish a manufacturing facility and brand presence.
  • Aims to double net sales to USD3 billion in five years.
• PGOLD:
  • Maintains a BUY rating with a target price of PHP50.
  • Target of opening 25 new stores could be the minimum, with 10 already operational as of end-1Q14.
  • Potential acquisitions are expected to further boost growth.

Telecom Sector

• TEL (Philippine Long Distance Telephone Co):
  • Clarified the acquisition of The Philippine Star by Mediaquest's subsidiary Hastings Holdings Inc.
  • After the transaction, Hastings will own 51% of The Philippine Star.

Valuation and Forecast

PGOLD (PHP46.50)

• Target Price: PHP50.
• Upside: 8%.
• Recommendation: BUY.
• Forecasted Metrics:
  • 2014F Net Sales: PHP87.1 billion.
  • 2014F Net Profit: PHP4.563 billion.
  • EPS: PHP1.65.
  • EPS Growth: 22.5%.
  • PER: 28.2.
  • EV/EBITDA: 16.2x.
  • ROE: 14.0%.

Other Key Stocks (as of 3 April 2014)

The Week Ahead

• 4 Apr: Integrated Micro-Electronics, Inc., Manila Water Corporation, Inc.
• 7 Apr: Ayala Land, Inc.
• Annual Stockholders' Meeting: Multiple companies, including BDO, BPI, CHIB, etc.

Summary of Key Points

• PGOLD reported strong performance in 2013, with net sales and net income growth exceeding expectations.
• The company is expected to continue its growth story in 2014F, driven by store expansion and acquisitions.
• PGOLD's target of opening 25 new stores is likely conservative, as it has historically exceeded its guidance.
• The consumer sector is showing signs of growth with URC's investment in Myanmar and PGOLD's expansion plans.
• Analysts maintain a BUY rating for PGOLD, with a target price of PHP50 and an upside of 8%.
• Valuation metrics for PGOLD and other stocks are provided, showing potential for continued growth and profitability.