MON 12 JUL 2021

Stocks in Focus:

RRHI: Good recovery prospects

with attractive valuations
(AS OF JUL 09, 2020)
INDICES
Expecting better growth in 2H21. RRHI expects better results in the second half of
2021 as the economy steadily recovers. Recall that RRHI’s sales declined by 11% y/y Close Points % YTD%
PSEi 6,834.92 -90.07 -1.30 -4.27
in 1Q21, still due to the pandemic coupled with the high base in supermarkets amid All Shares 4,234.54 -40.12 -0.94 -0.89
panic buying last 1Q20. Currently, foot traffic inside RRHI’s malls is still not back to Financials 1,477.78 -17.57 -1.17 2.08
pre-pandemic levels and was also dampened by the reimposition of ECQ in end-1Q21. Holding Firms 6,840.68 -107.04 -1.54 -6.99
Industrial 9,592.99 -42.59 -0.44 2.12
Nevertheless, management said foot traffic is slowly improving as the country eases on
Mining & Oil 9,696.16 -140.33 -1.43 1.76
quarantine restrictions. The faster rollout of the vaccine with increasing private sector- Property 3,294.23 -41.00 -1.23 -10.10
procured vaccines should help accelerate RRHI’s recovery. We also see RRHI potentially Services 1,595.13 -20.34 -1.26 5.35
benefitting from an election-related spending boost in late 2021 ahead of next year’s
Dow Jones 34,421.93 -260 -0.75 12.47
national elections. Finally, the eventual return to in-person classes would also serve as S&P 500 4,320.82 -37.31 -0.86 15.04
a huge lift to RRHI’s performance. Key risk remains to be the reimposition of tighter Nasdaq 14,559.79 -105.27 -0.72 12.97
restrictions as this would affect foot traffic once again.
INDEX GAINERS
Maintain BUY rating. We are maintaining our BUY rating on RRHI with a FV estimate of Ticker Company Price %
Php102/sh. RRHI’s share price has declined by 15% year-to-date, severely underperforming EMP Emperador Incc 12.60 4.13
the PSEI (-3.3% YTD). The company is also still trading 22% lower compared to its pre- BPI Bank of the Phil Islands 88.40 1.61
URC Universal Robina Corp 1.05
pandemic price, despite having good recovery prospects. We think this is not justified 144.00
SMC San Miguel Corp 118.00 0.60
given that RRHI is poised to fully recovery above pre-pandemic levels next year based RRHI Robinsons Retail Hldgs Inc 55.20 0.00
on our forecasts. Furthermore, RRHI is trading at 20X 2021E P/E, which is -1 standard
deviation away from its historical average P/E of 22X. In the medium-to-long term, RRHI
INDEX LOSERS
remains well positioned to capitalize on retail growth opportunities with its diversified Ticker Company Price %
portfolio of store formats. Furthermore, growing e-commerce trends bode well for the JFC Jollibee Foods Corp 203.00 -3.43
company given its increased focus on building its online presence LTG LT Group Inc 12.28 -3.15
MBT Metrobank 47.45 -2.97
MEG Megaworld Corporation 3.15 -2.78
RLC Robinsons Land Corp 17.50 -2.78
Top Story:

TOP 5 MOST ACTIVE STOCKS

MPI: Toll road demand weakened in April with shift to MECQ, power
Ticker Company Turnover
demand remained firm SMPH SM Prime Hldgs Inc 1,178,144,000
ICT Intl Container Term 497,206,700
ALI Ayala Land Inc 491,108,900
BDO BDO Unibank Inc 384,971,000
SM SM Investments Corp 280,287,900

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 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

MON 12 JUL 2021

COVID-19 Update:
Total Cases Total Deaths Total Recoveries

Philippines 1,473,025 (+5,916) 25,921 (+105) 1,397,403 (+6,127)

USA 34,732,753 (+6,642) 622,845 (+27) 29,244,103 (+9,173)

Worldwide 187,615,494 (+368,401) 4,048,856 (+6,261) 171,577,199 (+350,896)

Market Summary:

The local stock market continued to decline on Friday as concerns over the new COVID-19
variants clouded investor sentiment.

The PSEi shed 90.07 points or 1.3% to close at 6,834.92. The sell-off was broad-based
with decliners beating gainers, 25 to 4. The main drags were JFC (-3.43%), LTG (-3.15%),
MBT (-2.97%), RLC (-2.78%), and MEG (-2.78%). On the other hand, the only gainers were
EMP (+4.13%), BPI (+1.61%), URC (+1.05%), and SMC (+0.60%).

Value turnover surged to Php8.4Bil from the Php5.0Bil traded in the previous session.
Meanwhile, net foreign selling increased to Php1.1Bil on Friday from Php838.9Mil on
Thursday.

COL Financial Group, Inc. 2


MON 12 JUL 2021
Justin Richmond Cheng, CFA
Senior Research Analyst
Robinsons Retail Hldgs Inc.
BUY
Php102.00
COL Financial Group, Inc.
DAILY NOTES I PHILIPPINE EQUITY RESEARCH
Stocks in Focus:
RRHI: Good recovery prospects with
attractive valuations
Expecting better growth in 2H21. RRHI expects better results in the second half of
2021 as the economy steadily recovers. Recall that RRHI’s sales declined by 11% y/y
in 1Q21, still due to the pandemic coupled with the high base in supermarkets amid
panic buying last 1Q20. Currently, foot traffic inside RRHI’s malls is still not back to
pre-pandemic levels and was also dampened by the reimposition of ECQ in end-1Q21.
Nevertheless, management said foot traffic is slowly improving as the country eases on
quarantine restrictions. The faster rollout of the vaccine with increasing private sector-
procured vaccines should help accelerate RRHI’s recovery. We also see RRHI potentially
benefitting from an election-related spending boost in late 2021 ahead of next year’s
national elections. Finally, the eventual return to in-person classes would also serve as
a huge lift to RRHI’s performance. Key risk remains to be the reimposition of tighter
restrictions as this would affect foot traffic once again.
Aggressively expanding supermarkets going forward. RRHI is aggressively expanding
its supermarket segment by opening 400 to 500 Robinsons Easymart stores over the
next five years. This will be added to its current 268 supermarkets with 69 Easymart
branches. Robinsons Easymart is a minimart format carrying the top few SKUs and is
roughly 500 sqm in store area. This format records roughly one-fourth the sales of its
regular supermarkets. It also has strong economics with margins approaching RRHI’s
large supermarkets. We think the focus on this minimart format is beneficial for RRHI
given the ease of opening new stores compared to RRHI’s larger supermarkets, which
are mostly mall-based stores. This will help the company accelerate its expansion to
underpenetrated and rapidly urbanizing areas. For 2021, note that RRHI will still be
opening 20-25 supermarket stores with majority being Easymart branches. Assuming that
it hits its target openings over the next five years, we estimate that this would increase
Easymart contribution by four-fold in five years, bringing its sales contribution to 25-30%
of total supermarket sales.
Robust growth in e-commerce sales. RRHI’s e-commerce sales continued to enjoy
robust growth in 2021 with sales for the first five months of 2021 already achieving
the total online sales last year. Online sales currently account for slightly over 2% of
RRHI’s total sales, well within management’s target for the year of 2-3%. RRHI has
continued to strengthen its e-commerce presence by adding more formats and stores
under its GoRobinsons platform. In fact, its Department store was just onboarded to the
GoRobinsons platform last May. Furthermore, the products offered in its online stores
are comprehensive with the number of SKUs comparable to those in its offline stores.
3
 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

MON 12 JUL 2021

This development is beneficial for RRHI given that its e-commerce business is already
profitable and is a higher margin business. Vendors have also been giving strong support
and promotions for RRHI’s online business. Next year, RRHI will focus on expanding
GoRobinsons’ reach outside Metro Manila.

Enhancing shareholder value with share buybacks and special dividends. On

February 2021, RRHI’s Board of Directors extended its initial Php2.0Bil share buyback
program. They programmed an additional Php2.0Bil on top of the existing buyback given
that RRHI’s share price remains severely undervalued. Note that after roughly one year,
RRHI completed its initial buyback program in April 2021. It currently has repurchased
Php380Mil out of the Php2.0Bil extension. Apart from its ongoing buyback, RRHI’s
special dividends further enhances shareholder value. Recall that last June 10, RRHI paid
out Php0.83/sh in regular cash dividends and Php1.0/sh in special cash dividends. This
translated to a dividend yield of 3.5% based on the closing price of Php51.9/sh (closing
price post declaration). Going forward, management said the special dividends will likely
be maintained next year assuming no major capex is spent on M&As. Even at RRHI’s
current price of Php55.2/sh, we estimate dividend yield would still present an attractive
return of at least 3.3%.

Maintain BUY rating. We are maintaining our BUY rating on RRHI with a FV estimate of
Php102/sh. RRHI’s share price has declined by 15% year-to-date, severely underperforming
the PSEI (-3.3% YTD). The company is also still trading 22% lower compared to its pre-
pandemic price, despite having good recovery prospects. We think this is not justified
given that RRHI is poised to fully recovery above pre-pandemic levels next year based
on our forecasts. Furthermore, RRHI is trading at 20X 2021E P/E, which is -1 standard
deviation away from its historical average P/E of 22X. In the medium-to-long term, RRHI
remains well positioned to capitalize on retail growth opportunities with its diversified
portfolio of store formats. Furthermore, growing e-commerce trends bode well for the
company given its increased focus on building its online presence

COL Financial Group, Inc. 4

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

MON 12 JUL 2021

Top Story:

George Ching MPI: Toll road demand weakened in April with shift
Senior Research Manager
to MECQ, power demand remained firm
Metro Pacific Inv Corp
BUY Domestic toll road volume stalls in April but recovers in May. Following NCR’s shift
Php8.30 to modified enhanced community quarantine (MECQ) in April, the recovery in MPI’s
domestic toll road (NLEX, SCTEX, Cavitex) volume stalled to 358,000/day, down from
476,000/day average during 1Q21. However, with the shift back to General Community
Quarantine in May (GCQ), toll road volume once again recovered to 451,000/day. The
May toll road volume is ~ 13% lower compared to pre-pandemic levels, although it is ~
180% higher compared to the same period last year when the country was under stricter
community quarantine measures.

MER sales volume rises despite shift to MECQ. Despite NCR’s shift to MECQ in April,
MER’s total sales volume of MER increased to 3,788Gwh, 8.5% higher than the average
monthly volume during 1Q21, and 27% higher than April 2020 level. The April monthly
volume also brought MER’s sale volume to only ~ 5% below pre-pandemic level in April
2019. While MER’s sales volume data for May is still not available, we believe that power
consumption likely recovered further to near pre-pandemic level based on data from the
Independent Electricity Market Operator of the Philippines (IEMOP).

Maynilad sales volume slightly lower compared to 2020 level. Based on the most
recent data available (as of end-May), Maynilad’s sales volume during the month was at
44MCM (lower than the 45MCM during both pre-pandemic level in 2019 and May 2020).

LRT daily passenger volume declines 29% with shift to MECQ. The LRT-1’s average
daily ridership declined ~ 29% for the month of April and May from 1Q21 level due to
the shift to MECQ. Compared to pre-pandemic average daily ridership of ~ 450,000, the
current figure is still 79% below pre-pandemic level.

Maintaining BUY rating on MPI. We have a buy rating on MPI with a FV estimate
of Php8.30/sh. We are maintaining our BUY rating on MPI. We believe that while it is
still uncertain how the new concession agreement will impact the outlook and value
of Maynilad, investor sentiment on MPI could improve going forward as the new
concession agreement will ease uncertainties on Maynilad, as well as concerns on MPI’s
other regulated core businesses. Based on MPI’s current market price of Php3.75/
sh, the company is trading at a 60% discount to its NAV which implies that Maynilad
and its toll road business are already worthless. MPI is trading below its 46% stake in
Meralco(equivalent to 147% of MPI’s current market capitalization). Even if we assumed
the worst-case scenario where Maynilad would become worthless, capital appreciation
potential based on MPI’s current price is still 96% to Php7.35/sh.

COL Financial Group, Inc. 5

 DAILY NOTES I PHILIPPINE EQUITY RESEARCH

MON 12 JUL 2021

I M P O R TA N T R AT ING 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.

I M P O R TA N T DISC L AIM ER
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.

CO L R E S EAR C H T EAM

APRIL LYNN TAN, CFA

CHIEF EQUITY STRATEGIST
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAÑEDA, CFA

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, CFA
SENIOR RESEARCH ANALYST RESEARCH ANALYST SENIOR RESEARCH ANALYST
john.luciano@colfinancial.com rolfa.nicolas@colfinancial.com justin.cheng@colfinancial.com

ADRIAN ALEXANDER YU KERWIN MALCOLM CHAN

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

CO L F IN ANC IAL G R O UP, IN C.

24/F EAST TOWER, TEKTITE TOWERS,
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. 7