Robinsons Retail Holdings, Inc.

MON 19 OCT 2020

RRHI acquires 100% of Rose Pharmacy

for Php4.5Bil
RRHI acquires 100% of Rose Pharmacy for Php4.5Bil. In a disclosure to the PSE, RRHI
announced that it signed a share purchase agreement to acquire 100% of Rose Pharmacy
from Mulgrave Corporation B.V., a wholly owned subsidiary of Dairy Farm International
Holdings, Ltd. RRHI will be acquiring a total of 24.3Mil shares at Php184.85/sh for a
BUY
total cash consideration of Php4.5Bil. Rose Pharmacy is a leading drugstore chain in the
Philippines with close to Php9Bil in sales as of 2019 and over 300 stores strategically TICKER: RRHI
located in Visayas and Mindanao. The acquisition price implies a valuation of 0.5X price-to-
sales, which is much cheaper than RRHI’s acquisition of a 51% stake in TGP (1.1X P/S). The FAIR VALUE: 84.00
cheaper valuation is likely due to Rose Pharmacy operating at an EBIT loss of ~Php21Mil in CURRENT PRICE: 67.00
2019, unlike TGP, which was already earnings accretive.
UPSIDE: 25.37
Strategic acquisition to strengthen its foothold in pharmacy retail. We believe this
acquisition of Rose Pharmacy is beneficial for RRHI as it strengthens the company’s national
presence in the pharmacy retail industry. The strong presence of Rose Pharmacy in Visayas SHARE PRICE MOVEMENT
and Mindanao directly complements RRHI’s foothold in Luzon through Southstar Drugstore.
The acquisition is expected to increase RRHI’s total drugstore sales by 50%, making RRHI’s
Drugstore segment the second highest contributing business after Supermarkets. In 2019, 120

Drugstore sales accounted for around 10% of RRHI’s total revenues. This acquisition is
also expected to benefit RRHI as it can leverage on its existing scale, which Rose Pharmacy 110
lacked, having operated as a standalone company under Dairy Farm. We are confident that
management can unlock several cost efficiencies and synergies given its expertise and
proven track record. 100

More productive use of capital. RRHI has no issues funding this acquisition given its huge
cash position amounting to Php20Bil as of 1H20. Furthermore, we view this acquisition as 90

a more productive use of capital for the company, especially after RRHI turns the company
around. Management did not give a timeline for the turnaround of Rose Pharmacy, but 80
they mentioned that it could take longer than the Rustan’s given the ongoing pandemic. 19-Jul-20 19-Aug-20 19-Sep-20 19-Oct-20
Recall that Rustan’s broke even after nine to twelve months under RRHI. RRHI PSEi

Maintain BUY rating. We are maintaining our BUY rating on RRHI with a FV estimate of
Php84/sh. We continue to like RRHI given its well-diversified portfolio of retail formats
and positive long-term growth prospects. We think its recovery initiatives, especially the ABSOLUTE PERFORMANCE
strengthening of its e-commerce platform, makes RRHI well-positioned to capitalize on
future growth opportunities amid increasing digital trends. 1M 3M YTD
FORECAST SUMMARY RRHI -1.47 7.63 -16.25

Year to December 31 (Php Mil) 2017 2018 2019 2020E 2021E 2022E PSEi 1.87 -1.14 -22.98
Net Sales 115,238 132,680 162,916 166,925 181,369 206,192
% change y/y 9.4 15.1 22.8 2.5 8.7 13.7
Gross Profit 25,792 29,835 37,181 36,671 40,428 46,007 MARKET DATA
% change y/y 12.0 15.7 24.6 -1.4 10.2 13.8
Gross Margin (%) 22.4 22.5 22.8 22.0 22.3 22.3 Market Cap 104,938.22Mil
Operating Income 6,305 6,626 7,798 6,718 7,719 9,297 Outstanding Shares 1,566.24Mil
% change y/y 14.8 5.1 17.7 -13.9 14.9 20.4 52 Wk Range 44.00 - 80.10
Operating Margin (%) 5.47 5.0 4.8 4.0 4.3 4.5
3Mo Ave Daily T/O 42.25Mil
Net Income to common 4,978 5,107 3,919 3,815 4,412 5,315
% change y/y 3.1 2.6 -23.3 -2.6 15.7 20.5
Net Profit Margin (%) 4.3 3.8 2.4 2.3 2.4 2.6
EPS 3.59 3.65 2.49 2.42 2.80 3.37
% change y/y 3.1 1.4 -31.8 -2.6 15.7 20.5

RELATIVE VALUE
P/E(X) 18.6 18.4 27.0 27.7 23.9 19.9
P/BV(X) 1.8 1.7 1.8 1.7 1.6 1.5 Justin Richmond Cheng
ROE(%) 10.0 9.5 6.8 6.2 6.8 7.6 Research Analyst
Dividend Yield (%) 0.1 0.1 0.1 0.0 0.0 0.0 justin.cheng@colfinancial.com
So urce: RRHI, COL estimates

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 COMPANY UPDATE I RRHI: RRHI ACQUIRES 100% OF ROSE PHARMACY FOR PHP4.5BIL

MON 19 OCT 2020

Robinsons Retail INCOME STATEMENT (IN PHPMIL)

Holdings, Inc. (RRHI) Revenues

2017
115,238
2018
132,680
2019
162,916
2020E
166,925
2021E
181,369
2022E
206,192
% Growth 9.4% 15.1% 22.8% 2.5% 8.7% 13.7%
COMPANY BACKGROUND Gross Profit 25,792 29,835 37,181 36,671 40,428 46,007
RRHI is the 2nd largest multi-format % Growth 12.0% 15.7% 24.6% -1.4% 10.2% 13.8%
EBITDA 8,378 9,021 14,678 13,249 14,667 16,632
retailer in the Philippines operating six
% Growth 11.3% 7.7% 62.7% -9.7% 10.7% 13.4%
business segments; namely, supermarket, Operating Profit 6,305 6,626 7,798 6,718 7,719 9,297
department stores, do-it-yourself stores, % Growth 14.8% 5.1% 17.7% -13.9% 14.9% 20.4%
convenience stores, drug stores, and Interest Expense (127) (159) (2,578) (2,428) (2,428) (2,501)
specialty stores. The company runs its own Other Income/Expense 1,125 1,130 890 1,014 1,041 1,073
brand for its supermarket, department Pretax Income 7,303 7,597 6,110 5,304 6,332 7,869
Tax Expense 1,703 1,772 1,559 1,220 1,456 1,810
stores, and big box hardware stores. In
Net Income 4,978 5,107 3,919 3,815 4,412 5,315
addition, its other formats operate under
% Growth 3.1% 2.6% -23.3% -2.6% 15.7% 20.5%
strong local names like South Star Drug EPS 3.6 3.6 2.5 2.4 2.8 3.4
and The Generics Pharmacy as well as % Growth 3.1% 1.4% -31.8% -2.6% 15.7% 20.5%
recognized international brands such as
Handyman Do it Best, True Value, Ministop, BALANCE SHEET (IN PHPMIL)

Toys R Us, Daiso Japan, and Costa Coffee, 2017 2018 2019 2020E 2021E 2022E
among others. Meanwhile, its fashion and Cash & Equivalents 14,565 14,788 20,293 23,745 27,750 33,872
Trade Receivables 2,235 3,172 3,865 4,116 4,472 5,084
beauty brands include Topman, Topshop,
Inventories 14,847 18,628 19,810 20,698 22,396 25,454
Dorothy Perkins, Shiseido, and Benefit. Other Current Assets 2,424 3,160 2,951 2,951 2,951 2,951
PPE 13,601 19,269 19,290 19,679 19,789 19,619
REVENUE BREAKDOWN Other Non-Current Assets 34,509 48,761 71,657 71,657 71,657 71,657
Total Assets 82,181 107,777 137,866 142,847 149,016 158,638
Accounts Payable 17,774 24,577 25,102 25,694 27,802 31,598
12.3%
12.3% ST Debts 6,378 6,794 4,634 5,919 5,985 6,802
Other Current Liabilities 1,204 1,118 3,229 3,229 3,229 3,229
12.6% LT Debts - - - - - -
12.6%
45.4% Other Non-Current Liabilities 1,558 2,584 28,375 28,375 28,375 28,375
45.4%
Total Liabilities 26,914 35,073 61,340 63,217 65,391 70,004
5.0%
5.0% Total Equity 55,267 72,704 76,526 79,973 84,222 89,361
Total Liabilities & Equity 82,181 107,777 137,866 143,190 149,613 159,366
10.7%
10.7% BVPS 37.2 40.0 37.9 40.0 42.8 46.1
14.0% Estimates are still pre-PFRS16 figures
14.0%
CASHFLOW STATEMENT (IN PHPMIL)
Supermarket
Supermarket
Department store DIY store
Department store DIY store
2017 2018 2019 2020E 2021E 2022E
Convenience store Drug store Specialty store Pretax Income 7,303 7,597 6,110 5,154 6,103 7,579
Convenience store Drug store Specialty store
Depreciation & Amortization 2,073 2,395 6,880 3,110 3,390 3,670
Other Non-Cash Exp (Gains) (55) (48) 104 - - -
Interest Expense (Income) -746 -823 1,563 -3,341 -3,445 -3,608
Decrease (Increase) in Working Cap -1,771 -34 -2,607 -969 -561 -798
Operating Cash Flow 6,804 9,087 12,049 3,954 5,488 6,844
Capex -3,105 -4,419 -3,346 -3,500 -3,500 -3,500
Other Investments -408 -1,954 5,164 0 0 0
Investing Cash Flow -3,512 -6,374 1,818 -3,500 -3,500 -3,500
Proceeds (Payment) Debts -198 -1,084 -2,160 1,285 66 817
Payment of Cash Dividends -1,624 -1,266 -1,457 -980 -855 -1,013
Others 363 -144 -4,743 2,578 2,656 2,789
Financing Cash Flow -1,459 -2,495 -8,360 2,883 1,867 2,593
Change in Cash 1,833 219 5,507 3,337 3,854 5,937

COL Financial Group, Inc. 2

 COMPANY UPDATE I RRHI: RRHI ACQUIRES 100% OF ROSE PHARMACY FOR PHP4.5BIL

MON 19 OCT 2020

INVESTMENT THESIS: KEY RATIOS

Diverse store portfolio makes RRHI 2017 2018 2019 2020E 2021E 2022E
GPM (%) 22.4% 22.5% 22.8% 22.0% 22.3% 22.3%
well positioned to capitalize on growth
EBITDA Margin (%) 7.3% 6.8% 9.0% 7.9% 8.1% 8.1%
opportunities OPM (%) 5.5% 5.0% 4.8% 4.0% 4.3% 4.5%
RRHI is well positioned to capitalize on NPM (%) 4.3% 3.8% 2.4% 2.3% 2.4% 2.6%
the robust growth of the economy given Times Interest Earned (X) 49.5 41.7 3.0 2.8 3.2 3.7
Current Ratio (X) 1.3 1.2 1.4 1.5 1.6 1.6
its presence as a multi-format retailer with
Net D/E Ratio (X) (0.1) (0.1) (0.2) (0.2) (0.3) (0.3)
a diverse portfolio of both essential and Days Receivable 6.7 7.4 7.9 8.7 8.6 8.5
non-essential goods. As one of the leading Days Inventory 57.5 59.4 55.8 56.8 55.8 54.5
supermarket operators, RRHI stands to Days Payable 70.5 75.2 72.1 71.2 69.3 67.7
Asset T/O (%) 145.1% 139.7% 132.6% 118.9% 124.3% 134.0%
benefit from the continuous shift to modern
ROAE (%) 9.4% 8.0% 5.3% 4.9% 5.4% 6.1%
grocery retailing. In addition, 37% of its
revenues come from discretionary formats, MAJOR CORPORATE DEVELOPMENTS (5-YEARS)
making the company a beneficiary of higher
Acquired Visayas hardware chain A.M. Builder's Depot May-14
discretionary spending as consumer wealth
continues to rise.
Partnered with British company Costa Coffee Sep-14

Store expansion into underpenetrated

areas to drive growth Joint Venture with Saver's appliance (90% stake in Saver's electronic world) Sep-15
RRHI’s store expansion will continue to drive
its growth. The company is currently focusing
Acquired 51% in The Generics Pharmacy May-16
on expanding into underpenetrated areas
outside Metro Manila as there is still a huge
potential for growth given that majority of Acquired 75% stake in De Oro Pacific Home Depot Aug-16

retail sales, especially outside the metro, is

still captured by traditional retail formats. Acquired 100% stake in Rustan's Supercenters, Inc. Nov-18

Strong cash position provides more

flexibility for inorganic growth
RRHI has a strong cash position with
Php14.5Bil in cash and Php20.6Bil in liquid
available-for-sale (AFS) financial assets. This
gives the company more flexibility to take
advantage of the opportunities in the retail
sector whether through acquiring smaller
players and minimizing competition or
through major acquisitions that will drive
inorganic growth.

COL Financial Group, Inc. 3

 COMPANY UPDATE I RRHI: RRHI ACQUIRES 100% OF ROSE PHARMACY FOR PHP4.5BIL

MON 19 OCT 2020

Valuation RELATIVE VALUATION

Methodology P/E EPS Growth

2020E 2021E 2020E 2021E
CIC 59.3 22.8 -70.0% 160.2%
CNPF 12.6 11.5 29.2% 9.3%
DNL 35.6 29.5 -22.0% 20.8%
EMP 18.1 17.7 -0.8% 1.8%
JFC -21.8 67.9 -301.4% -132.1%
MAXS -12.7 -57.2 -219.8% -77.9%
MRSGI 137.9 43.6 -91.4% 216.3%
PGOLD 16.1 15.2 16.4% 5.6%
PIZZA -408.1 44.2 -106.1% -1023.4%
SSI -14.5 44.4 -190.8% -132.6%
URC 34.6 32.6 10.5% 6.3%
WLCON 44.4 29.8 -30.9% 49.0%
Industry Ave ex-RRHI -8.2 25.2 -86.0% -86.0%
Industry Median ex-RRHI 17.1 29.6 -70.0% 5.6%

RRHI 27.7 23.9 -2.6% 15.7%

VALUATION ASSUMPTIONS

For DCF
Risk Premium 9.0%
Risk Free Rate 4.0%
Beta 1.0
Cost of Equity 13%
Cost of Debt 6.0%
Tax Rate 26.0%
WACC 13.0%
Terminal Growth Rate 4.0%

PV (FY19E-FY23E) 7,725

PV of Terminal Value 79,192

Enterprise Value 117,747
Less: Net Debt -10,550
Add: Other Investments 4,792
Equity Value 133,089
O/S 1,577
FV Estimate 84.00

COL Financial Group, Inc. 4

 COMPANY UPDATE I RRHI: RRHI ACQUIRES 100% OF ROSE PHARMACY FOR PHP4.5BIL

MON 19 OCT 2020

IMPORTANT RATING DEFINITIONS

BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market in the next six to
12 months.

HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might be poor
or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the next six to twelve
months.

SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

IMPORTANT DISCLAIMER
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount invested.
Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said information may be
incomplete or condensed. All opinions and estimates constitute the judgment of COL’s Equity Research Department as of the date of the report and are subject to change
without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial and/
or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies mentioned in this report and may trade
them in ways different from those discussed in this report.

COL RESEARCH TEAM

APRIL LYNN TAN, CFA

VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

JOHN MARTIN LUCIANO, CFA FRANCES ROLFA NICOLAS JUSTIN RICHMOND CHENG
SENIOR RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com justin.cheng@colfinancial.com

ADRIAN ALEXANDER YU KERWIN MALCOLM CHAN

RESEARCH ANALYST RESEARCH ANALYST
adrian.yu@colfinancial.com kerwin.chan@colfinancial.com

COL FINANCIAL GROUP, INC.

2402-D EAST TOWER, PHILIPPINE STOCK EXCHANGE CENTRE,
EXCHANGE ROAD, ORTIGAS CENTER, PASIG CITY
PHILIPPINES 1605
TEL NO. +632 636-5411
FAX NO. +632 635-4632
WEBSITE: www.colfinancial.com

COL Financial Group, Inc. 5