Oct 29, 2013 – Bad Girl RRHI? Really ? (Market Commentary re Robinsons Retail’s IPO)

RRHI

What is Robinsons Retail Holdings Inc?  If you look at the above picture which I took a screenshot of from the prospectus, it actually represents a multiple retail format holding company.  Why multiple?  It has supermarkets, department stores, DIY stores, convenience stores, drug stores, toy stores and specialty branded clothing stores.

According to Euromonitor’s store-based retailing market share data, RRHI is the second largest Multi-Format Retailer in the Philippines in terms of revenue in 2012. With over 30 years of retail experience, RRHI possesses a deep understanding of Philippine consumers and enjoy market leading positions across all of our business segments.

As of 1H13, RRHI consists of 940 stores nationwide, with 428 stores in Metro Manila, 423 in Luzon (outside Metro Manila), 55 in Visayas and 34 in Mindanao, with a total net selling space of approximately 545,337 sqm.

Core Retail Operations can be subdivided into 6 business segments:

1.) Supermarkets –

2.) Department Stores

3.) DIY stores

4.) Convenience Stores

5.) Drug stores

6.) Specialty Stores

RRHI Operating Information

Summary of the Offer, Use of Proceeds, Growth Plans :

Offer Period – October 29 to November 5, 2013

Listing Date- November 11, 2013

The offer of up to 484,750,000 new Shares, consisting of 461,897,500 Primary Offer Shares and up to 22,852,500 Optional Shares pursuant to the Over-allotment Option.

*****

At P58/share , the company’s total outstanding shares is 1,345,000 or a market cap of approximately 80 Bil.  The company will most likely be compared to Philippine retail counterparts – SM Retail and Puregold.  From proforma statements of 1H13, the company has EPS of P2.62 according to prospectus.  (Actually I have computed it myself and I only got 1.89 or approximately 2 bucks when I annualize the 1H13 net income number, so I’m not sure why my EPS calculation is different from theirs.   I used the outstanding shares, and it seems as if they calculated it based on the 473 M shares that will be sold to the market (which seems wrong.)

Calculated EPS =  Net income of 1H13 *2 = 1272*2 or 2,544

Outstanding Shares = 1,345 or EPS of 1.89 per share. (Seems the prospectus computed EPS here is wrong?)

RRHI EPS

How does the P58/share stack up against peers?  Well if EPS is 1.89/share then it’s trading at 30X 1H13 annualized P/E only at par with Pgold and SM Retail which are both aggressively expanding and also trading roughly at 30X P/E levels as well.  (SM Retail is computed via Sm Investments’ attributable marketcap.)

Is there growth in Robinsons Retail?

1.) 1400 stores by 2014  RRHI plans to increase their total number of stores across all retail formats to approximately 1,400 by the end of 2014, from 940 stores as of June 30, 2013. Approximately half of the proposed new openings are planned for Metro Manila, with the remaining new openings planned for the rest of the country. Approximately 20% of the new stores are expected to be larger format stores (supermarkets, department stores and DIY stores).

2.) Further increase operating efficiency and margins – Higher Margin from Product Mix and Cross Selling of Products

RRHI intends to continue to leverage their multi-format business model and scale to realize greater synergies in sourcing and procurement and also to maximize our bargaining position with suppliers and consignors. As we continue to grow our business, we negotiate for additional discounts for advertising support, product distribution, enlistment of new products, satisfactory service levels, volume purchase, offering preferential gondola placement and display to our suppliers, discounts for senior citizens and persons with disabilities, and supplier portal access, among others, to help increase our margins. We will also leverage our increasing bargaining power with landlords, to secure store places at prime locations and to seek attractive rental rates. Further, centralizing certain functions, such as information technology, marketing, intellectual property management and human resources functions across our operating formats has also helped control operating expenses. In the past three years, as a result of our cost control measures, our total operating expenses, as a percentage of total net sales, has remained relatively constant at 17.6%, 18.9% and 18.5% in 2010, 2011 and 2012, respectively.

In addition, we will look to improve margins through the optimization of our product offering mix. For example, we intend to increase the mix of higher margin non-pharmaceutical products from 40% to 50% at our drug stores by adding more beauty and healthcare products. We also intend to enhance the positioning of our convenience stores as a lifestyle store by strengthening its leadership in higher margin ready-to-eat products.

3.) Expand into new retail segments and pursue attractive acquisition opportunities – Robinsons Gourmet Food, Babies r Us et al

By leveraging the strong financial base provided by our established businesses, we intend to continue to explore expansion into new retail segments, such as home furniture, sporting goods, school and office supplies and coffee shops, which we believe will complement our existing portfolio, through new store openings and opportunistically through acquisitions.

On July 8, 2013, Robinsons Gourmet Food and Beverage, Inc., a wholly-owned subsidiary of RI, was incorporated to engage in the business of establishing, operating and managing retail coffee shops and espresso shops. In addition, within our existing retail formats, we will also look to pursue acquisitions of smaller local supermarket chains, DIY, drug store chains and consider including Babies “R” Us as a concept store within the Toys “R” Us store as a prospective expansion in an effort to consolidate the market, strengthen our market position and increase scale efficiencies. We intend to evaluate and assess each potential acquisition based on, among other things, the reputation, track record and locations of the targets. To ensure the successful integration of acquired businesses, we intend to standardize the operating procedures of any newly acquired assets. Our track record of successfully identifying and integrating new retail formats and businesses provides us with the confidence to continue to execute such a strategy going forward.

FAQs from Retail Clients : Can I flip RRHI on the first day?

In my honest opinion, if RWM has a successful run on November 5, people will order RRHI due to positive sentiment.  Downside is that if RWM fails in its IPO on Nov 5 (put it at 10% probability), then RRHI will falter more due to the perception bias that Gokongwei IPOs normally are a flop with CEB burning many investors’ pockets which will fail to rekindle any IPO interest with Gokongwei companies.  Nevertheless, looking at the contents of this company, assuming 2013 EPS is not 1.90 and if I’m wrong that it really can grow to EPS of  P2.30 by 2014 (conservatively earning 15% from 1H13 annualized)  then it can hit at least 66 or the high end of its original target range during the offer period of 55-66 price range.

Plus, it’s never wrong to hold RRHI for its retail components since the stock (assuming maipit ka) is earning money and the earnings can grow to where the price is currently at.  Also the use of proceeds seem to really add to the value of the company.  In a way, I think RRHI will somehow track the index in the future.  It won’t outperform like what Puregold did because of its massive expansion plans, but RRHI will not fail primarily because its in the right sector and still is at the heart of the retail segment – with track record in the industry for the past 30 years.  Good for longterm investors in my view.  It doesn’t seem to be bad girl RRHI for me.   Seems like a good girl RRHI.

badgalriri

Trivia: How did URC IPO fare before? During 1994, IPOs managed to go up but note too that 1994-1995 was a very strong bull market in the 90s.

See chart below.

In 1994, a total of 21 companies listed on the stock exchange, raising P37.4 billion. Among these companies were Petron Corp., SM Prime Holdings, Universal Robina Corp., Megaworld, Aboitiz Equity Ventures, Cosmos Bottling Corp. and Cebu Holdings Inc. The IPO fever made instant millionaires when new issues soared. IPOs such as Benpres and Petron closed more than double their IPO price during their first listing day.

The IPO fever symbolized the boom in the 1990s when virtually all kinds of company shares were gobbled up by investors of all stripes. That fantasy land, however, disappeared when the Asian financial crisis erupted in July 1997, taking shareholder wealth with it.

So far, more than 90 percent of those that have gone public have made good or even exceeded their promises,” said AB Capital Securities Erwin Balita.

Lim said the continued advance of the stock market benchmark PSEi, which is now at its highest level in nine years and nine months, has created a strong urge among many companies to offer their shares to the public rather than borrow from banks.

http://www.philstar.com/business/377735/return-ipo-fever

URC during IPO

– Faceless Trader

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