MM: Another David Vs Goliath Story?: Merrymart Consumer Corp

MerryMart Consumer Corp.
WED 27 MAY 2020
MM: Another David vs Goliath story?
Raising Php1,594.9Mil from IPO. MerryMart (MM) will be offering up to 1,594.9Mil

shares to investors at an offer price of Php1.0/sh. If fully subscribed, gross proceeds from
the offering should reach Php1,594.9Mil, bringing net proceeds to Php1,471.8Mil after
deduction of fees and expenses. Existing shareholders will own 6,000Mil shares or 79%
of MM’s issued and outstanding capital stock while the public will own the remaining
1,594.9Mil shares or 21%. This will bring MM’s number of shares outstanding post-IPO to
7,594.9Mil shares. Note that the 6,000Mil common shares held by the company’s existing
shareholder are owned by Injap Investments, Inc. and were subscribed at Php0.05/sh. The
offer period will be from May 27 to June 5 while the listing date will be on June 15.
Fragmented grocery segment undergoing consolidation. According to Euromonitor,

the supermarket/hypermarket/discounter club category has grown at a consistent CAGR
of 8.57% in the last six years and is expected to continue growing at 6.8% from 2019 to
2024. The top players in the industry, Puregold Price Club Inc. (PGOLD), SM Retail (SM), and
Robinsons Retail Holdings Inc. (RRHI), have been consistently growing their store network
over the years by expanding company-owned stores and successfully acquiring traditional
supermarket brands. Out of the 2,640 outlets in the country as of end 2019, 32.8% were
owned by traditional supermarket operators, down from 44.1% in 2014 as most of these
traditional supermarkets were acquired by chained supermarket operators which have
stronger branding and enjoy economies of scale.
Conversion of non-chained supermarket to the MM brand. The MM Group believes

that there is an opportunity for growth given the declining market share of non-chained
supermarkets. From 2014 to 2019, 10.4% of PGOLD’s store openings were through
acquisitions of other supermarkets. Meanwhile, RRHI’s acquisition of supermarkets
reached 63.7% of its total store openings from 2014 to 2019. Unlike PGOLD and RRHI, the
MM Group’s plan is to expand its full-size supermarket network via franchising through
the conversion of traditional supermarkets into MerryMart Grocery stores. This will allow
traditional supermarket owners to continue operating and managing their business while
improving their ability to compete against chained supermarket operators.
Relying on franchise model to grow store network count. MM plans to expand their
3-in-1 format stores through franchising, given its potential for scalability. The rollout
of these 3-in-1 stores would play a significant role in allowing MM to reach its goal of
having 1,200 stores by 2030. Despite the delays in construction and store openings from
the Luzon-wide enhanced community quarantine (ECQ), the company is maintaining its
goal of opening 100 branches by 4Q21. They are also targeting 600 branches by 2025 and
1,200 branches by 2030, where 1,000 branches are expected to be small format stores and
majority of those are expected to be franchised branches.
Current valuation contingent on successful execution of planned expansion. At Adrian Alexander Yu

its offer price of Php1.00/sh, MM will be trading at 271x 2019 P/E which is a significant
Research Analyst
premium relative to the 19.9x 2020E average P/E of MM’s comparables. Price to book value
adrian.yu@colfinancial.com
ratio will also be high at 18.7x largely due to the dilution caused by the issuance of 6 billion
shares at Php0.05/sh. In order for MM to justify its current valuation, the company will
need to book a net income of Php380Mil which is significantly higher than its net income Kerwin Malcolm Chan
of Php28Mil in 2019. Over the next 2- 3 years, MM could book more than Php400Mil in Research Analyst
recurring profits should it successfully convert large groceries while being on schedule with kerwin.chan@colfinancial.com
the rollout of MM stores.
Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of the
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FIELD NOTES I MM: ANOTHER DAVISD VS. GOLIATH STORY?
WED 27 MAY 2020
Company Background
MerryMart Consumer Corp. (MM) is a consumer-focused retail company engaged in the

operation of retail stores in the supermarket and household essentials category. The
company is a wholly owned subsidiary of Injap Investments Inc., which is the holding
company of the Sia Family, led by Edgar Sia II. MM also wholly owns MerryMart Grocery
Centers Inc. (MMGC), which operates as the master franchisor of the MerryMart branches.
Exhibit 1: Company Structure
Injap Investments Inc.
35% 100%
Double Dragon Properties

MerryMart Consumer Corp.
Corp.
100%
MerryMart Grocery
Centers Inc.
source: MerryMart
The retail company has three store formats in operation: 1) MerryMart Grocery, a full size
supermarket that offers a wide variety of food and non-food products, a broad selection
of personal care products, and a pharmaceutical section with a size of 1,500sqm; 2)
MerryMart Market, a medium format specialized grocery that offers a larger selection
of premium and imported grocery items and includes a large fresh selection of fruit,
vegetables, and seafood products with a size of 600sqm; and 3) MerryMart Store, a small
format household essentials store with a 3-in-1 concept which combines a mini-grocery,
personal care shop, and pharmacy into one shop with a size of 150sqm.
As of May 15, 2020, the company had 7 MerryMart branches with 14 branches under
various stages of construction. Management intends to open several branches as soon
as the government allows construction to resume. Despite the delays in construction
and store openings from the Luzon-wide enhanced community quarantine (ECQ), the
COL Financial Group, Inc. 2

WED 27 MAY 2020
company is maintaining its goal of opening 100 branches by 4Q21. The company’s
2030 vision is to have a total of 1,200 MerryMart branches composed of 200 MerryMart
Groceries and Markets and 1,000 MerryMart Stores in operations nationwide with a
system-wide sales of Php120Bil.
Exhibit 2: Multiple Store Formats

Store Type Description Typical Size Est. Number of
SKUs in Store
MM Grocery 1,500 - 2,000 sqm 20,000
MM Market 600 - 1,000 sqm 10,000
MM Store 150 - 300 sqm 3,000
source: MerryMart

WED 27 MAY 2020
Raising Php1,594.9Mil from IPO
MM will be offering up to 1,594.9Mil shares to investors at an offer price of Php1.0/sh. If

fully subscribed, gross proceeds from the offering should reach Php1,594.9Mil, bringing
net proceeds to Php1,471.8Mil after deduction of fees and expenses. The net proceeds
will be used to fund the MM Group, composed of MM and MMGC, and their investments.
Existing shareholders will own 6,000Mil shares or 79% of MM’s issued and outstanding
capital stock while the public will own the remaining 1,594.9Mil shares or 21%. This will
bring MM’s number of shares outstanding post-IPO to 7,594.9Mil shares. Note that the
6,000Mil common shares held by the company’s existing shareholder are owned by Injap
Investments, Inc. and were subscribed at Php0.05/sh. The offer period will be from May
27 to June 5 while the listing date will be on June 15.
Exhibit 3: IPO Details
Stock Symbol MM
Offer Price Php1.0/sh
Market Cap Php7,594.9Mil
Total Shares Offered
Primary 1,595Mil
Gross Proceeds Php1,594.9Mil
Net Proceeds Php1,471.8Mil
Shares Outstanding Post IPO 7,595Mil
Offer Period May 27 - June 5, 2020
Listing Date June 15, 2020
source: MerryMart
Approximately 70% of the net proceeds from the IPO or Php1.031Bil will be used to fund
the MM Group’s store network expansion plan. The group plans to open 100 stores by
4Q21, of which around 25 stores will be rolled out using the net proceeds of the IPO.
Out of the Php1,030.8Mil, Php924.7Mil will be used for capital expenditures while the
remaining will be allotted for their initial working capital.
Meanwhile, approximately 15% of the net proceeds will be used to fund capital expenditures
for the MM Group’s distribution centers. MM plans to open three distribution centers in
the next 12 months – one in Luzon, Visayas, and Mindanao. The remaining 15% of the net
proceeds will be used for general corporate purposes.


WED 27 MAY 2020
Exhibit 4: Use of Proceeds
Est. Timing of
Use of Proceeds Est. Amount (Php) Est. Amount (%)
Disbursement
Store Network Expansion Php1,030.8Mil 70% 2Q20 to 4Q21
Capital Expenditures Php924.7Mil
Initial Working Capital Php106.1Mil
Investments in Distribution Centers Php220.9Mil 15% 2Q20 to 4Q21
General Corporate Purposes Php220.1Mil 15% 2Q20 to 4Q21
Total Php1,471.8Mil 100%
source: MerryMart
Key Investment Highlights
Fragmented grocery segment undergoing consolidation
MerryMart falls under the supermarket category, where supermarkets are defined as
retail outlets selling groceries with a net selling space of 400 to 2,500 sqm. According
to Euromonitor, the supermarket/hypermarket/discounter club category has grown at a
consistent CAGR of 8.57% in the last six years and is expected to continue growing at 6.8%
from 2019 to 2024. The top players in the industry, Puregold Price Club Inc. (PGOLD), SM
Retail (SM), and Robinsons Retail Holdings Inc. (RRHI), have been consistently growing
their store network over the years by expanding company-owned stores and successfully
acquiring traditional supermarket brands. As of end-2019, 36.4% were owned by the top
three industry players, up from 27.8% in 2014.
Exhibit 5: Growth in Supermarket/Hype market/Discounter/Warehouse Clubs

(Retail Value in PhpMil)
source: EuroMonitor

WED 27 MAY 2020
Exhibit 6: Market Share of the Top 3 Chained Supermarket/Hypermarket/Discounter/Warehouse

Brand Owners
100%
90%
80%
70% Others
67.6% 66.9% 63.6% Brands
72.2% 70.8% 69.0%
60%
50%
Top 3
40%
Chained
30% Brands
20% 36.4%
29.2% 31.0% 32.4% 33.1%
27.8%
10%
0%
2014 2015 2016 2017 2018 2019
source: EuroMonitor
Nevertheless, out of the 2,640 outlets in the country as of end 2019, 67.2% were owned
by chained supermarket brands (those with at least 10 stores). Only 32.8% were owned by
traditional supermarket operators, down from 44.1% in 2014 as most of these traditional
supermarkets were acquired by chained supermarket operators which have stronger
branding and enjoy economies of scale.
With still a third of the total outlets owned by traditional supermarket operators, there’s
an opportunity for a new grocery chain operator to penetrate the market by converting
traditional supermarkets into franchised supermarkets to take advantage of branding
and scale benefits of chained supermarkets. As of end-2019, there were 1,121 traditional
supermarket outlets the MM could potentially convert into MM groceries through a
franchise model.

WED 27 MAY 2020
Exhibit 7: Market Share of Chained Supermarket/Hypermarket/Discounter/

Warehouse Club Brand Owners
100%
90%
32.8%
80% 41.4% 41.4% 39.0% 37.7%
44.1%
70% Traditional
Supermarkets
60%
50%
Chained
40% Supermarkets
67.2%
30% 58.6% 58.6% 61.0% 62.3%
55.9%
20%
10%
0%
2014 2015 2016 2017 2018 2019
source: EuroMonitor
Rapid growth of the convenience store segment
Meanwhile, MerryMart Stores are intended to penetrate the Convenience Store and
Drugstore/Pharmacy Retailer industries, given the stores’ unique 3-in-1 household
essentials concept. According to Euromonitor, the convenience store industry has
increased by a CAGR of 19.02% over the last six years. The convenience store industry is
expected to continue growing by 20.5% during the forecast period.
As of end-2019, the top 3 convenience store players: 7-Eleven, Ministop, and Alfamart,
controlled 92.8% of the market based on retail value. Although the competitive environment
of the convenience store industry is not as attractive given the dominant position of the
big three players, the industry shows promising opportunities for new entrants given its
robust growth outlook. Convenience stores also remain to be a destination of choice for
consumers looking for convenient meal solutions and daily necessities. This should allow
new convenience store entrants to compete against major chains.

WED 27 MAY 2020
According to a Euromonitor report, grocery retailers continue to improve their minimart

format to keep up with the growing number of Filipinos preferring to shop in smaller
outlets more frequently. In addition, smaller grocery retailing formats can expand at a
faster pace than other formats, which should allow them to increase and widen capacity
to cater to consumer needs.
Exhibit 8: Growth of Convenience Store Industry (Retail Vale in PhpMil)
source: MerryMart
Key Strategic Plans
Conversion of non-chained supermarket to the MM brand
The MM Group believes that there is an opportunity for growth given the declining
market share of non-chained supermarkets. From 2014 to 2019, 10.4% of PGOLD’s store
openings were through acquisitions of other supermarkets. Meanwhile, RRHI’s acquisition
of supermarkets reached 63.7% of its total store openings from 2014 to 2019.
Unlike PGOLD and RRHI, the MM Group’s plan is to expand its full-size supermarket
network via franchising through the conversion of traditional supermarkets into
MerryMart Grocery stores. This will allow traditional supermarket owners to continue
operating and managing their business while improving their ability to compete against
chained supermarket operators. Once the traditional supermarket operator agrees to
convert into a MerryMart grocery store, they will enjoy the same advantages as chained
supermarkets such as branding, economies of scale, and better product distribution.

WED 27 MAY 2020
MM believes that this method of franchising is a better alternative to non-chained

supermarket owners who don’t want to sell their businesses to large chained supermarkets.
The conversion of these traditional supermarkets will entail a franchise fee of Php1.95Mil
plus VAT and royalty fees, based on 1% of Gross Sales. In exchange, the MM Group
plans to offer distribution to post-converted traditional supermarkets, which should help
temper franchisees’ costs and increase their margins to cover the royalties due to MM.
MM believes that the conversion of traditional supermarkets to MerryMart Grocery stores

is a more compelling strategy than building large groceries from scratch. MM will only
require franchisees to refresh their stores’ looks and comply with MerryMart’s brand,
design guidelines, and best practices. The renovation period should take less than 75
days.
Exhibit 9: 2014 - 2019 Store Network Growth of the Top 3 Supermarket Chains
180
160
140
120
100
Acquisitions
80 Organic
60
40
20
0
Puregold SM Retail Robinsons Retail
source: EuroMonitor
3-in-1 store format to boost sales and improve margins
Although most of the convenience store segment has been captured by top players in
the industry, the MM Group believes that their one-stop shop, which has a mini-grocery,
personal care shop, and pharmacy will be able to create a niche that can attract customers
with multiple consumer needs. MM stores will differ from typical convenience stores
because of its higher margin pharmacy and beauty products. Consumers will be able to
come in and buy necessities such as groceries, but may also leave the store purchasing
other discretionary items.

WED 27 MAY 2020
In addition to boosting sales, the 3 in 1 concept should also result in higher GPM given
that pure convenience stores typically operate with GPM less than 10% while drug
stores and specialty stores have much higher GPM of up to 20% and 28% respectively.
Assuming that sales pharmacy and personal care items reach 50% of MM’s net sales,
MM stores’ GPM could easily be 50% higher than typical convenience stores.
Relying on franchise model to grow store network count
MM plans to expand their 3-in-1 format stores through franchising, given its potential
for scalability. MM stores, which range from 150-300 sqm, can easily be operated by
franchisees given the limited number of personnel required and a significant reduction
in SKUs carried compared to groceries. Franchising a MerryMart Store will cost around
Php10Mil to Php15Mil, with a franchise fee of Php1.2Mil plus VAT and royalty fees,
based on 2% of gross sales.
The rollout of MerryMart Stores is expected to be faster than the other two store
formats. Given the smaller area of the 3-in-1 stores, it will take approximately 60 days to
complete one store. Moreover, the franchise model of these small format stores should
ramp up store network. The rollout of these 3-in-1 stores would play a significant role
in allowing MM to reach its goal of having 1,200 stores by 2030.
As of May 15, 2020, the Group is planning to open 14 more branches, composed of
10 MerryMart Grocery outlets, 1 MM Market branch, and 3 MM Stores as soon as the
government lifts restrictions under the COVID-19 induced lock downs. They are also
targeting 600 branches by 2025 and 1,200 branches by 2030, where 1,000 branches are
expected to be small format stores and majority of those are expected to be franchised
branches.

WED 27 MAY 2020
Exhibit 10: Map of MM Group’s existing branches
source: MerryMart
Exhibit 11: List of franchising fees
MM Grocery MM Store
Royalty Fee 1% of Gross Sales 2% of Gross Sales
Franchise Fee Php1.95Mil + VAT Php1.2Mil + VAT
Term N/A 10 years
Store Cost N/A Php10Mil to Php15Mil
Admin Fee N/A 0.5% of Gross Sales
source: MerryMart

WED 27 MAY 2020
Investment in Distribution Centers
MM believes that traditional supermarket owners will continue to lose market share to top
players in the industry over time. This will lead to lower volume for regional distributors
of supermarket products since chained supermarket operators are supplied directly by
the manufacturers. The remaining traditional supermarkets would likely experience major
supply chain issues due to the decline in distributors. Distributors will also be forced to
increase their prices to compensate for their lower sales volume.
In anticipation of supply chain issues, MM plans to invest in distribution centers to

ensure an uninterrupted supply of products to its owned and franchised stores. MM’s
relationship with Double Dragon Properties Corp. (DD) allows the company to locate
its distribution centers in parallel with the development of DD’s industrial projects,
particularly CentralHub. This will allow the company to strategically enhance its supply
chain to help with store expansion. MM’s midterm goal is to achieve 100% coverage of
its supply chain for all branches by 2025. By 2030, the group aims to have 81 distribution
centers in 81 provinces in the Philippines.
Company Financials
Strong SSSG for old stores
From 2017 to 2019, MM’s net income increased by a CAGR of 18.3%. This was mainly
driven by the 19.5% CAGR of total revenues as the company generated a same store sales
growth (SSSG) of 19.7% and 13.0% in 2018 and 2019, respectively. However, FY19 profits
declined by 31.0% y/y to Php28.0Mil due to higher operating and interest expenses from
opening an MM Grocery store during the year.
FY19 operating margin likewise contracted by 90bps to 1.8% from 2.7% from higher
expenses while gross profit margin expanded by 130bps to 5.7% from a slower year-on-
year increase in cost of sales than revenues. According to management, sale of goods
revenue from the Injap Supermart located in Burgos Roxas City grew the fastest at 19.8%
y/y to Php1.6Bil.
Meanwhile, the MerryMart Grocery located in DoubleDragon Plaza contributed the least
to FY19 revenues since they only started operating in May 2019. Moving forward, we
would need to see growth in the company’s newly opened MM grocery as this would
likely dictate the company’s growth trajectory. Should the new stores perform well, it
would be easier to MM to attract franchises, and make the company’s rapid growth more
attainable.

WED 27 MAY 2020
Leverage to go down with IPO
As of end 2019, MM’s outstanding loan amounted to Php150.0Mil. Consequently, the

company ended the year with a D/E ratio of 1.4x. However, with fresh capitalization from
the major shareholders and proceeds from the IPO, MM’s D/E ratio will fall to 0.1x.
Despite MM’s aggressive expansion plan, leverage should be manageable given its plan
of growing through franchising. As such, capex will be limited to company owned stores.
The franchising model also gives MM additional source of revenues, such as franchise fees
and percent of sales royalties, which would help MM fund the construction of company
owned stores.
Exhibit 12: 2017 - 2019 Results Summary
in PHP thousands 2017 2018 % change 2019 % change

Total Revenues 1,760,099 2,116,971 20.3 2,515,236 18.8
Gross Profit 69,689 93,708 34.5 144,564 54.3
Gross Profit Margin (%) 4.0 4.4 - 5.7 -
Operating Income 28,499 57,926 103.3 46,510 -19.7
Operating Margin (%) 1.6 2.7 - 1.8 -
Net Income 19,998 40,598 103.0 28,009 -31.0
Net Margin (%) 1.1 1.9 - 1.1 -
Store Network 2 2 - 3 -
SSSG (%) - 19.7 - 13.0 -
source: MerryMart
Exhibit 13: Sale of Goods Mix
in PHP thousands 2017 2018 % change 2019 % change

Injap Supermart - TATC Roxas City 656,172 727,170 10.8 740,457 1.8
Injap Supermart - Burgos Roxas City 1,094,517 1,368,238 25.0 1,626,523 18.9
MerryMart Grocery - DoubleDragon Plaza - - - 115,323 -
Total Sale of Goods 1,750,690 2,095,408 19.7 2,482,303 18.5
source: MerryMart

WED 27 MAY 2020
Valuations
Current valuation contingent on successful execution of planned expansion
At its offer price of Php1.00/sh, MM will be trading at 271x 2019 P/E which is a significant
premium relative to the 19.9x 2020E average P/E of MM’s comparables. Price to book
value ratio will also be high at 18.7x largely due to the dilution caused by the issuance
of 6 billion shares at Php0.05/sh. In order for MM to justify its current valuation, the
company will need to book a net income of Php380Mil which is significantly higher than
its net income of Php28Mil in 2019.
To justify its IPO valuation, MM needs to bank on franchisee fees to generate higher net
income in the next few years, while continuing the process of converting large groceries
and opening new MM convenience stores. Recall that MM would book fees of Php1.2Mil
for MM stores and almost Php2Mil for the conversion of large groceries.
Over the next 2- 3 years, MM could book more than Php400Mil in recurring profits should
it successfully convert large groceries while being on schedule with the rollout of MM
stores. Note that for large groceries with net sales of Php1Bil, MM would book Php10Mil
on royalty revenues alone. Recall that there are still in excess of 1,100 large non-chain
groceries that MM could potentially target and convert to MM stores.
Exhibit 14: Relative Valuation
Market Cap P/E EPS Growth

in PHPMil 2019E 2020E 2019E 2020E
MM 7,594 271.2 - -31.0% -
Concepcion Industrial Corp (CIC) 9,657 10.9 15.5 -2.0% -30.0%
Century Pacific Food Inc. (CNPF) 54,126 17.2 12.8 11.0% 34.0%
D&L Industries Inc. (DNL) 37,857 14.4 17.3 -18.0% -17.0%
Emperador Inc. (EMP) 123,066 16.8 22.3 11.0% -25.0%
Jollibee Foods Corp. (JFC) 151,905 23.7 42.4 -24.0% -44.0%
Maxs Groups Inc. (MAXS) 6,265 6.6 10.3 16.0% -36.0%
Metro Retail Stores Group Inc. (MRSGI) 5,693 5.5 9.9 44.0% -44.0%
Purgold Price Club Inc. (PGOLD) 132,675 19.6 16.0 0.0% 22.0%
Shakey's Pizza Asia Centure Inc. (PIZZA) 9,295 10.6 12.4 4.0% -14.0%
Robinsons Retail Holdings Inc. (RRHI) 107,767 27.6 25.7 -32.0% 7.0%
Store Specialist Inc. (SSI) 3,925 4.8 8.8 35.0% -46.0%
Universal Robina Corp. (URC) 286,541 27.0 24.5 15.0% 10.0%
Wilcon Depot Inc. (WLCON) 60,184 28.3 34.1 16.0% -17.0%
E-Mart Inc. (139480 KS Equity) 127,543 15.5 12.0 -66.4% 29.8%
Shanghai Bailian Group (900923 CH Equity) 99,878 12.7 16.4 20.2% -22.7%
Beijing Hualian Group (600361 CH Equity) 21,308 29.1 37.3 115.7% -22.1%
Industry Ave ex-MM 16.9 19.9 9.1% -13.4%
Industry Median ex-MM 16.2 16.2 11.0% -19.6%
source: MerryMart, COL estimates, Bloomberg

WED 27 MAY 2020
COVID-19 update
To address and contain the rising number of coronavirus cases in the Philippines,
President Rodrigo Duterte declared a Luzon-wide ECQ from March 17 to May 15. Malls
and other non-essential stores were temporarily closed while public transportation and
work in the private sector were suspended to implement a strict home quarantine and
limit outside movement. Nevertheless, all 7 MerryMart branches remained operational
to provide basic consumer goods to the Filipino community during the ECQ. According
to management, they only experienced supply chain disruptions during the first two to
three weeks of the ECQ as people were stocking up on masks and alcohol. MM did not
incur any layoffs despite the pandemic because sales of their stores were 30-40% higher
than pre-ECQ sales.
During the ECQ, the MM Group’s ramp up of store expansion was delayed as construction
activities were suspended. Management was supposed to open 6 stores in April and May
2020. Nonetheless, these 6 branches are expected to open in Metro Manila by June
2020 as the government eases its ECQ to a modified enhanced community quarantine
(MECQ) allowing construction activities. In addition, construction of the MM branches
in provincial areas that declared general community quarantine (GCQ) have already
resumed. However, management mentioned that provincial branches will only open once
local flights have resumed.

Risks
Execution Risk
The MM Group faces the risk of poorly executing its growth strategy. As discussed earlier,
MM’s valuation is very expensive based on its 2019 earnings as it is already pricing in
successful store network expansion strategy to spur growth. Delays in new store openings
or franchise expansions can potentially harm the company’s future earnings. As discussed
earlier, MM has a very ambitious goal of opening 1,200 stores by 2030, up from only 3
stores as of end 2019.
Competition Risk
Given that the MM Group belongs to the minority non-chained supermarket brand,
the group will have to compete against the top players in the industry. Since these top
players have more established brands and market presence than MerryMart, the MM
Group might encounter difficulties in gaining market share.

WED 27 MAY 2020
COVID-19 Pandemic Risk
During the Luzon-wide ECQ, construction of stores was suspended while ready to open
stores had their openings pushed back to June. Aside from this, the opening of MM
provincial stores will rely on the resumption of local flights. Although the construction
of these branches has already resumed, as of now, there are still no news on when
local flights will continue. The country is also at risk of experiencing a second wave of
coronavirus infections as guidelines on the lockdown and work conditions ease. The
increase in coronavirus cases may lead to another ECQ with stricter guidelines causing
more delays in store network expansion especially in high-risk places such as Metro
Manila.

WED 27 MAY 2020
MerryMart Consumer INCOME STATEMENT (IN PHPMIL)
Corp. (MM) Total Revenues

2017
1,760,099
2018
2,116,971
2019
2,515,236
% Growth 20.3% 18.8%
COMPANY BACKGROUND EBITDA 29,766 59,344 65,021
% Growth 99.4% 9.6%
MerryMart Consumer Corp. (MM) is an
Depreciation (1,218) (1,368) (18,401)
emerging consumer focused retail company Interest expense 0.0% 0.0% -665380.0%
engaged in the operation of retail stores in Other income (expenses) 48 50 (6,544)
the supermarket and household essentials EBT 28,547 57,976 39,966
% Growth 103.1% -31.1%
category. It has three store formats:
Taxes (8,550) (17,378) (11,957)
MerryMart Grocery, MerryMart Market, Net Income 19,998 40,598 28,009
and MerryMart Store. Each store format % Growth 103.0% -31.0%
serves and targets different segments of
the Philippine Market. As of May 2020, the BALANCE SHEET (IN PHPMIL)
company has seven MerryMart branches 2017 2018 2019

Cash 19,815 20,908 270,309
operational.
Accounts Receivables 1,648 914 9,842
Inventory 202,159 270,449 183,419
REVENUE BREAKDOWN
Other Current Assets - 3,839 46,369
Total Current Assets 223,622 296,110 509,938
0.8%
0.5% PPE 4,967 29,012 221,795
Other Assets 1,081 8,617 182,902
Total Assets 229,671 333,739 914,635
0.8%
Accounts Payable 108,738 95,188 145,041
0.5%
Loans Payable - - 150,000
Other Current Liabilities 77,693 154,061 87,546
Total Current Liabilities 186,431 249,249 382,587
Retirement Benefits Liability 3,604 4,256 6,196
Other Liabilities - - 417,608
Total Liabilities 190,034 253,505 806,391
Shareholder's Equity 39,636 80,234 108,244
98.7%
98.7%
CASHFLOW STATEMENT (IN PHPMIL)

Sale of goods Display rental Other operating income
Sale of goods Display rental Other operating income 2017 2018 2019
Operating CF 6,719 33,705 51,356
EBT 28,547 57,976 39,966
Non-cash items 1,928 2,020 26,995
Change in working cap -20,026 -22,597 -15,332
Income Tax Paid (3,731) (3,694) -273
Investing CF (1,078) (32,612) (251,058)
PPE (1,078) (25,412) (201,823)
Intangible Assets - (7,200) (7,563)
Other Non-Current Assets - - (41,672)
Financing CF - - 449,103
Future Stock Subscription - - 298,750
Availment of Loans - - 150,000
Other Non-Current Liabilities - - 1,380
Lease Payment - - (1,028)
Net Cash Increase in Cash 5,641 1,093 249,401
Cash (Begin) 14,174 19,815 20,908
Cash (End) 19,815 20,908 270,309

WED 27 MAY 2020
KEY RATIOS
2017 2018 2019
ROE 50.5% 50.6% 25.9%
EBITDA Margin 1.7% 2.8% 2.6%
Net Profit Margin 1.1% 1.9% 1.1%
CA/CL (X) 119.9% 118.8% 133.3%
D/E Ratio (X) 0.0 0.0 1.4
A/E Ratio (X) 5.8 4.2 8.4

WED 27 MAY 2020
I MP OR TA NT 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 MP OR TA NT 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.
C O L R E S EAR C H T EAM
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 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
C O L F INANC IAL G R O UP, I NC.

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

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MerryMart Consumer Corp.

WED 27 MAY 2020