Rating

AP Securities, Inc.
BUY (formerly Angping & Associates Securities, Inc.)

Retail Company 10 August 2017

Metro Retail Stores Group, Inc Migz Ong

Research Assistant
Earnings Update
+632 848 2915 local 147

Expansion-Driven Growth mong@aps.com.ph

Stock Price Target Price Return Potential Market Cap MRSGI:PM

4.00 4.80 20.0% P 13.72 Bn MRSGI.PS

Reiterate BUY Rating Price Performance

110
Recommendation. With results outperforming our estimates, we
100
reiterate our BUY rating on MRSGI with a 12-month TP of P4.80.
Our price target is based on a 15.40x 2018 PER which is the 90

discounted average PER of its local retail peers (RRHI and 80

PGOLD). We expect continuous store expansion, coupled with 70
improving margins to help MRSGI deliver and support earnings
60
growth moving forward.
50
MRSGI PM PCOMP

1H17 Results Summary

1m 6m 12m
Earnings Outperform. For 2Q17, MRSGI’s net profit grew to P
Absolute -21.57% 0.50% -26.61%
305.19 Mn (+45.9%), backed by big improvement in its margins as
PSEi 1.89% 10.37% -0.81%
more of its stores mature, and due to cost efficiencies. This brought
1H17 earnings to P 401.12 Mn (+53.08%), accounting for 44.42%
of our full year estimates. Note that last year, MRSGI’s 1H16
Stock Data
earnings only accounted for 33.19% of 2016. We believe that
Sector Retail
MRSGI may still outperform our full year target for this year as the
Ave. Value Traded (last 30 days) Pm 20.43
strongest period for the company is the 2H17 due to holiday
12m high/low P 5.85 / 3.53
spending.

Flattish Growth in Topline Offset by Margin Improvements.

MRSGI booked revenues of P 16.59 Bn in 1H17 (+3.36 %), with Forecast Summary
2015A 2016A 2017F 2018F
the flattish growth attributed to a high-base effect last 1H16 due to
election spending. Despite this, we saw a big improvement in gross Revenues 32,506 34,709 35,746 39,214
margin to 21.98% (from 20.67%), and operating margins to 3.10% Net Income 758 789 903 1,065
(from 1.87%). Higher gross margins is primarily due to MRSGI EPS 0.22 0.23 0.26 0.31
shifting to in-house inventory which now accounts for 35% of its EPS Growth 11.22% 4.07% 14.40% 17.98%
[sales/inventory] mix (from 25%), as against a concession-based PER (x) 16.36 15.73 13.75 11.65
which has generally lower gross margins. MRSGI can also benefit
EBITDA 1,505 1,608 1,830 2,292
from supplier discounts due to this ongoing shift, with its days EBITDA
inventory also remaining manageable at 52 days. Improvement in Margin 4.63% 4.63% 5.12% 5.84%

the operating level is attributable to MRSGI embarking on cost EV/EBITDA 7.45 5.87 6.43 6.16

efficiency programs such as improving sales per employee, timing ROE 11.77% 11.05% 11.22% 11.69%
of ads with store events, and using in-house logistics to lower BVPS 1.88 2.08 2.35 2.66
distribution costs. P/BV 1.93 1.74 1.54 1.36

AP Securities, Inc. (formerly known as Angping & Associates Securities, Inc.)

This research report was prepared by the APS Research Department. The opinions contained in this report are those of APS Research Department. DISCLOSURES AND
ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1
Metro Retail Stores Group, Inc

Figure 1: MRSGI’s 1H17 Earnings Summary

P Mn 2Q16 2Q17 % Chg 1H16 1H17 % Chg

Revenues 8,412 8,590 2.12 16,049 16,587 3.36%
Gross Profit 1,790 1,977 10.44% 3,318 3,647 9.92%
Operating Profit 253 407 60.88% 300 514 71.40%

Margins
Gross Profit Margin 21.28% 23.01% 20.67% 21.98%
Operating Margin 3.01% 4.74% 1.87% 3.10%
Net Profit Margin 2.49% 3.55% 1.63% 2.42%
Source: Company Data, APS Research
Metro Retail Stores Group, Inc

STOCK RATING

BUY HOLD SELL

BUY.
We expect the share price
to outperform the market
in the next six to twelve
months.
SELL.
HOLD.
We expect the share price
We expect the share price
to underperform in the
to perform in line with the
next six to twelve months.
market in the next six to
twelve months.

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