I Philippine Equity Research Earnings Analysis

Friday, 03 May 2024

RRHI: 1Q24 core profits up 3.6% on modest topline

growth, in line with COL forecasts

Denise Joaquin
Rating Fair Value Current Price Upside
Research Analyst

BUY 85.30 35.95 137.27%

RRHI’s 1Q24 core income rose by 3.6% y/y to Php989Mil on the back of modest Robinsons Retail
topline growth during the period. Results were broadly in line with our expectations Holdings, Inc.
and accounted for 17.0% of our full-year estimates (whereas core profits typically Ticker: RRHI
account for ~17.6% of full-year results). In terms of headline profits, RRHI’s net
income rose to Php5.1Bil following a ~Php4.0Bil one-time gain resulting from the
BPI-Robinsons Bank merger.
Market Cap (mil)
52,313.71
• Essentials buoy topline results as discretionary formats underperform.
RRHI’s net sales during the quarter stood at Php45.9Bil, posting a modest Outstanding Shares (mil)
2.9% y/y increase. Results appeared lackluster in part due to the earlier onset 1,455.18
of the Holy Week holidays this year that caused a number of RRHI’s non-
Forward P/E
essential stores to be closed for two days in March. SSSG was flat (+0.90%)
5.59
during the quarter as the positive performance of non-discretionary formats
was offset by weaker results of discretionary stores. Dividend Yield
5.29
• Operating margins stable in the first quarter. Operating margins were stable
at 4.1% coming from the same level in 1Q23. This was on the back of a 20bps
y/y expansion in consolidated GPM and a moderate increase in operating
expenses (+3.9% y/y).

• Realigning estimates; maintain BUY. We are fine-tuning our estimates on

RRHI following its first quarter results. In particular, we raised our net income
forecast for FY24 to Php9.5Bil to account for the one-time gain resulting
from the BPI-RBC merger. Meanwhile, we maintained our FY25 net income
forecast of Php6.7Bil. As a result of the changes in our forecasts, our FV
estimate on the stock slightly decreased to Php85.3/sh from Php85.7/sh
previously and maintain our BUY rating on the stock.

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Earnings Analysis I RRHI: 1Q24 core profits up 3.6% on modest topline growth, in line with COL forecasts Friday, 03 May 2024

Forecast Summary

Year to December 31 (Php Mil) 2020 2021 2022 2023 2024E 2025E
Net Sales 151,070 153,327 178,821 192,126 206,735 222,687
% change y/y -7.3 1.5 16.6 7.4 7.6 7.7
Gross Profit 32,898 35,226 42,216 45,631 49,343 53,036
% change y/y -11.5 7.1 19.8 8.1 8.1 7.5
Gross Margin (%) 21.8 23.0 23.6 23.8 23.9 23.8
Operating Income 5,779 6,059 8,681 8,901 10,082 10,747
% change y/y -25.9 4.8 43.3 2.5 13.3 6.6
Operating Margin (%) 3.8 4.0 4.9 4.6 4.9 4.8
Net income to equity 3,217 4,528 5,736 4,077 9,466 6,769
% change y/y -17.9 40.8 26.7 -28.9 132.1 -28.5
Net Profit Margin (%) 2.1 3.0 3.2 2.1 4.6 3.0
EPS 2.05 2.94 3.83 2.76 6.43 4.60
% change y/y -17.6 43.7 30.2 -28.0 132.7 -28.5

RELATIVE VALUE
P/E(X) 17.5 12.2 9.4 13.0 5.6 7.8
P/BV(X) 0.7 0.7 0.7 0.7 0.6 0.6
ROE(%) 4.2 5.9 7.5 5.2 11.4 7.7
Dividend Yield (%) 3.4 5.7 6.4 6.7 5.3 11.5
source: RRHI, COL estimates

Share Price Movement

110.00

105.00

100.00

95.00

90.00

85.00

80.00
02/05/2024 02/23/2024 03/13/2024 04/03/2024 04/24/2024
RRHI PSEi

source: Bloomberg

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Earnings Analysis I RRHI: 1Q24 core profits up 3.6% on modest topline growth, in line with COL forecasts Friday, 03 May 2024

Core profits in line with forecasts

RRHI’s 1Q24 core income rose by 3.6% y/y to Php989Mil on the back of modest
topline growth during the period. Core income (which excludes non-core items
such as equitized losses of associates, forex gains, interest expense related to
the acquisition financing of BPI shares, and others) were broadly in line with our
expectations and accounted for 17.0% of our full-year estimates. Note that 1Q
core profits typically account for ~17.6% of full-year results. In terms of headline
profits, RRHI’s net income rose to Php5.1Bil following a ~Php4.0Bil one-time gain
resulting from the BPI-Robinsons Bank merger. Net sales grew by 2.9% y/y to
Php25.9Bil, reflecting a mixed performance across RRHI’s various retail formats.
While top-line results slightly trailed our forecasts (21.8% of FY estimates), this
was cushioned by the slower-than-expected increase in operating expenses.

Exhibit 1: Results Summary

% of Full year Forecast
in PhpMil 1Q23 1Q24 %Change COL Consensus
Net Sales 44,593 45,887 2.9 21.6 21.8
Gross Profit 10,529 10,911 3.6 21.7 21.9
Gross Margin (%) 23.6 23.8 - - -
Operating Income 1,824 1,885 3.4 18.7 19.1
Operating Margin (%) 4.1 4.1 - - -
Core Income 954 989 3.6 17.0 -
Core Income Margin (%) 2.1 2.2 - - -
Net Income 537 5,081 846.7 87.9 92.3
Net Margin (%) 1.2 11.1 - - -
Source: RRHI, COL Estimates, Bloomberg

Essentials buoy topline results as discretionary formats underperform

RRHI’s net sales during the quarter stood at Php45.9Bil, posting a modest 2.9%
y/y increase. Results appeared lackluster in part due to the earlier onset of the
Holy Week holidays this year that caused a number of RRHI’s non-essential stores
to be closed for two days in March. SSSG was flat (+0.90%) during the quarter
as the positive performance of non-discretionary formats was offset by weaker
results of discretionary stores. Food retail logged a 1.7% SSSG, driven by higher
comparable sales of supermarkets (+2.0%) and convenience stores (+5.1%).
Drugstores also logged a robust 6.5% SSSG due to the sustained demand for
prescription and OTC medicine. On the other hand, specialty store sales posted a
-7.1% drop in comparable sales due to subdued demand for Savers Appliances and
low fill rates for Daiso in addition to the timing of the Holy Week break. Similarly,
comparable sales of DIY declined - 6.5% amid sluggish demand and increased
competition. Meanwhile, SSSG of department stores fell to -2.1% due to closure
of stores during the holidays as well as increased competition in fast fashion.

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Earnings Analysis I RRHI: 1Q24 core profits up 3.6% on modest topline growth, in line with COL forecasts Friday, 03 May 2024

Exhibit 2: Net Sales Breakdown

Net Sales SSSG
1Q23 1Q24 % Change 1Q23 1Q24
Food 27,146 28,080 3.4 9.5 1.7
Department Store 3,247 3,175 -2.2 26.4 -2.1
DIY Store 2,902 2,720 -6.3 2.9 -6.5

Drugstore 7,976 8,803 10.4 5.9 6.5

Specialty Store 3,322 3,109 -6.4 5.0 -7.1
44,593 45,887 2.9 9.2 0.9

Source: RRHI

Operating margins stable in the first quarter

Operating margins were stable at 4.1% coming from the same level in 1Q23. This
was on the back of a 20bps y/y expansion in consolidated GPM and a moderate
increase in operating expenses (+3.9% y/y). Food retail saw a 30bps y/y expansion
due to increased vendor support and increased penetration of imported products
(~13.5% of sales) for supermarkets and increased penetration of RTE products
(~40% of sales) for convenience stores. Drugstores likewise saw a 20bps y/y
improvement in GPM amid the increased penetration of house brands (~10%
of sales). RRHI’s discretionary formats likewise saw GPM gains on the back of
assortment changes and increased supplier support. Nonetheless, GPM gains
were partly offset by expansion-related operating costs.

Management provides updates on minority investments

Equitized losses from associates amounted to -Php150Mil (+12.9% y/y but -12.6%
q/q) in 1Q24, largely attributable to losses from RRHI’s minority investment in
hard discount retailer O!Save. During the 1Q24 results briefing, management
mentioned that O!Save generated US$47Mil (~Php2.7Bil) in sales during the first
quarter, with a store network of 238 stores and aggregate store area of 64k
sqm. Meanwhile, management said that losses from digital bank startup GoTyme
were no longer equitized by RRHI after the company reduced its participation in
GoTyme’s capital calls towards the end of 2023. As a result, RRHI’s ownership in
GoTyme was reduced to 19% (from 20% previously).

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Earnings Analysis I RRHI: 1Q24 core profits up 3.6% on modest topline growth, in line with COL forecasts Friday, 03 May 2024

Realigning estimates; maintain BUY

We are fine-tuning our estimates on RRHI following its first quarter results. In
particular, we raised our net income forecast for FY24 to Php9.5Bil to account for
the one-time gain resulting from the BPI-RBC merger. Meanwhile, we maintained
our FY25 net income forecast of Php6.7Bil. These were driven by our lower
revenue forecasts for FY24 (-2.8%) and FY25 (-3.2%) and our higher operating
margin assumptions. As a result of the changes in our forecasts, our FV estimate
on the stock slightly decreased to Php85.3/sh from Php85.7/sh previously and
maintain our BUY rating on the stock.

We continue to like the company given its well-diversified portfolio of retail

formats in the staples and consumer discretionary categories. We expect
recovery this year to be driven by the impact of wage hikes that could alleviate
tightened consumer spending.

Exhibit 3: Summary of Revisions

2024E 2025E
in PhpMil Old New %Change Old New %Change
Revenues 212,630 206,735 (2.8) 229,948 222,687 (3.2)
Gross Profit 50,376 49,343 (2.1) 54,571 53,036 (2.8)
Gross Margin % 23.7 23.9 - 23.7 23.8 -
Operating Income 10,071 10,082 0.1 10,720 10,747 0.3
Operating Margin % 4.7 4.9 - 4.7 4.8 -
Net Income 5,778 9,466 63.8 6,772 6,769 (0.0)
Net Margin % 2.7 4.6 - 2.9 3.0 -

Source: COL Estimates

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Earnings Analysis I RRHI: 1Q24 core profits up 3.6% on modest topline growth, in line with COL forecasts Friday, 03 May 2024

Income Statement Company Background

2021 2022 2023 2024E 2025E 2026E RRHI is the 2nd largest multi-format
Revenues 153,327 178,821 192,126 206,735 222,687 238,982
retailer in the Philippines operating six
% Growth 1.5% 16.6% 7.4% 7.6% 7.7% 7.3%
Gross Profit 35,226 42,282 45,631 49,343 53,036 56,882 business segments; namely, supermarket,
% Growth 7.1% 20.0% 7.9% 8.1% 7.5% 7.3% department stores, do-it-yourself
EBITDA 13,147 15,878 16,400 18,061 19,037 19,919 stores, convenience stores, drug stores,
% Growth 3.0% 20.8% 3.3% 10.1% 5.4% 4.6%
Operating Profit 6,059 8,698 8,901 10,082 10,747 11,300 and specialty stores. The company
% Growth 4.8% 43.6% 2.3% 13.3% 6.6% 5.1% runs its own brand for its supermarket,
Interest Expense (1,961) (1,988) (3,114) (3,006) (2,873) (2,756) department stores, and big box hardware
Other Income/Expense 1,171 1,277 410 4,901 1,460 1,655
stores. In addition, its other formats
Pretax Income 5,269 7,987 6,197 11,977 9,335 10,200
Tax Expense 419 1,551 1,541 1,856 1,867 2,040 operate under strong local names like
Net Income 4,528 5,847 4,077 9,466 6,769 7,425 Southstar Drug, Rose Pharmacy, and The
% Growth 40.8% 29.1% -30.3% 132.1% -28.5% 9.7% Generics Pharmacy as well as recognized
EPS 294.4% 383.4% 276.1% 642.6% 459.5% 504.1%
% Growth 43.7% 30.2% -28.0% 132.7% -28.5% 9.7% international brands such as Handyman
Do it Best, True Value, Ministop, Toys R

Balance Sheet Us, Daiso Japan, Pet Lovers Centre, and

No Brand, among others. Meanwhile, its
2021 2022 2023 2024E 2025E 2026E
Cash & Equivalents 16,170 17,767 13,173 18,713 18,033 19,507 beauty brands include Shiseido, Benefit,
Trade Receivables 2,667 3,528 3,948 4,249 4,576 4,911 and Elizabeth Arden.
Inventories 25,090 27,470 29,668 31,875 34,358 36,879
Other Current Assets 2,989 2,434 1,682 1,682 1,682 1,682
PPE 17,620 22,648 23,392 22,698 22,179 21,788
Other Non-Current Assets 69,698 67,680 83,159 83,054 83,236 83,665 Revenue Breakdown
Total Assets 134,234 141,526 155,023 162,271 164,065 168,433 Segment
(according Breakdown
to Business Segments)
Accounts Payable 21,216 27,490 26,899 28,899 31,150 33,436
ST Debts 7,734 8,409 8,129 8,129 8,129 8,129
Other Current Liabilities 3,576 4,198 4,245 2,339 2,352 2,382 8%
LT Debts 0.00 0.00 13,240.16 11,223.83 9,223.83 7,223.83
Other Non-Current Liabilities 25,196 24,855 23,132 24,991 25,161 25,560
17%
Total Liabilities 57,722 64,952 75,645 75,582 76,016 76,731
Total Equity 76,513 76,574 79,378 86,689 88,049 91,703
Total Liabilities & Equity 134,234 141,526 155,023 162,271 164,065 168,433
3%
BVPS 50.60 51.72 53.88 58.85 59.77 62.25 57%
7%
Cashflow Statement 8%
2021 2022 2023 2024E 2025E 2026E
Pretax Income 5269 7987 6173 11977 9335 10200
Depreciation & Amortization 7088 7180 7500 7979 8290 8619
Other Non-Cash Exp (Gains) (1,109) (632) 31 - - - Supermarket Department store
Interest Expense (Income) 1,514 1,598 2,866 2,771 2,596 2,484 DIY store Convenience store
Decrease (Increase) in Working Cap (5,578) 166 (1,406) (2,128) (2,150) (2,339) Drug store Specialty store
Operating Cash Flow 7,184 16,299 15,164 20,599 18,071 18,964
Capex (2,457) (5,551) (6,517) (3,102) (3,499) (3,877)
Other Investments 2,187 899 (14,820) 58 - -
Investing Cash Flow (270) (4,652) (21,337) (3,044) (3,499) (3,877)
Proceeds (Payment) Debts (1,850) 675 12,944 (2,016) (2,000) (2,000)
Payment of Cash Dividends (3,147) (3,437) (3,529) (2,810) (6,108) (4,507)
Others (7,086) (7,134) (7,540) (7,188) (7,144) (7,106)
Financing Cash Flow (12,082) (9,896) 1,875 (12,014) (15,252) (13,613)
Change in Cash (5,168) 1,752 (4,297) 5,541 (680) 1,474

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Earnings Analysis I RRHI: 1Q24 core profits up 3.6% on modest topline growth, in line with COL forecasts Friday, 03 May 2024

Key Ratios Investment Thesis

2021 2022 2023 2024E 2025E 2026E Diverse store portfolio makes RRHI
GPM (%) 23.0% 23.6% 23.8% 23.9% 23.8% 23.8% well positioned to capitalize on growth
EBITDA Margin (%) 8.6% 8.9% 8.5% 8.7% 8.5% 8.3%
opportunities
OPM (%) 4.0% 4.9% 4.6% 4.9% 4.8% 4.7%
NPM (%) 3.0% 3.3% 2.1% 4.6% 3.0% 3.1% RRHI is well positioned to capitalize on the
Times Interest Earned (X) 3.1 4.4 2.9 3.4 3.7 4.1 robust growth of the economy given its
Current Ratio (X) 1.4 1.3 1.2 1.4 1.4 1.4
presence as a multi-format retailer with
Net D/E Ratio (X) (0.1) (0.1) 0.1 0.0 (0.0) (0.0)
Days Receivable 6.9 6.3 7.1 7.2 7.2 7.2 a diverse portfolio of both essential and
Days Inventory 73.1 70.3 71.2 71.4 71.2 71.4 non-essential goods. As one of the leading
Days Payable 68.9 65.1 67.8 64.7 64.6 64.7 supermarket operators, RRHI stands to
Asset T/O (%) 111.2% 129.7% 129.6% 130.3% 136.5% 143.7%
ROAE (%) 5.9% 7.6% 5.2% 11.4% 7.7% 8.3% benefit from the continuous shift to modern
grocery retailing. In addition, around 22%
of its revenues come from discretionary
Major Corporate Developments (5-Years)
formats, making the company a beneficiary
of higher discretionary spending as
Acquired Visayas hardware chain A.M. Builder's Depot 05/01/2014
consumer wealth continues to rise.

Partnered with British company Costa Coffee 09/01/2014

Store expansion into underpenetrated
Joint Venture with Saver's appliance (90% stake in Saver's electronic
09/01/2015 areas to drive growth
world)
RRHI’s store expansion will continue
Acquired 51% in The Generics Pharmacy 05/17/2016
to drive its growth. The company is

Acquired 75% stake in De Oro Pacific Home Depot 08/01/2016 currently focusing on expanding into
underpenetrated areas outside Metro
Acquired 100% stake in Rustan's Supercenters, Inc. 11/01/2018 Manila as there is still a huge potential
for growth given that majority of retail
Acqured 100% of Rose Pharmacy, Inc. 10/01/2020
sales, especially outside the metro, is still
captured by traditional retail formats.

Strong cash position provides more

flexibility for inorganic growth
RRHI has a strong cash position with
Php12.4Bil in cash and Php11.6Bil in debt
and equity instrument financial assets
as of end-2021. 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.

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Earnings Analysis I RRHI: 1Q24 core profits up 3.6% on modest topline growth, in line with COL forecasts Friday, 03 May 2024

Valuation Methodology
Valuation Assumptions
Risk Premium 6.5%
Risk Free Rate 6.0%
Beta 75.0%
Cost of Equity 10.9%
Cost of Debt 4.3%
Tax Rate 21.0%
WACC 9.0%
Terminal Growth Rate 3.5%

PV (FY24E-FY28E) 29,202

PV of Terminal Value 97,278

Enterprise Value 127,177
Add: Attributable stake in BPI 29,788
Add: Other Investments 1,663
Less: Net Debt (32,241)

Equity Value 126,387

O/S 1,480
FV Estimate 85.30

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Earnings Analysis I RRHI: 1Q24 core profits up 3.6% on modest topline growth, in line with COL forecasts Friday, 03 May 2024

Important Rating Definitions COL Research Team

BUY April Lynn Tan, CFA

Stocks that have a BUY rating have attractive fundamentals and valuations based on our First Vice President & Chief Equity Strategist
analysis. We expect the share price to outperform the market in the next six to 12 months. april.tan@colfinancial.com

HOLD Charles William Ang, CFA

Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive AVP & Head of Research
charles.ang@colfinancial.com
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
George Ching
line or underperform in the market in the next six to twelve months.
Senior Research Manager
george.ching@colfinancial.com
SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the Richard Laneda, CFA
share price to underperform in the next six to12 months. Senior Research Manager
richard.laneda@colfinancial.com

Important Disclaimer Denise Joaquin

Research Analyst
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment denise.joaquin@colfinancial.com
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 Charmaine Co
its accuracy and said information may be incomplete or condensed. All opinions and estimates Research Analyst
charmaine.co@colfinancial.com
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
Paolo Miguel Manansala
is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial
Research Analyst
and/or its employees not involved in the preparation of this report may have investments in
paolo.manansala@colfinancial.com
securities of derivatives of the companies mentioned in this report and may trade them in
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