Puregold Price Club, Inc: Aggressive expansion continues

On track to meet estimates.

PGOLD’s margins in 1H15 seemed weak initially with Puregold brand stores registering a gross margin of only 15.0%. Accounting for the delayed booking of Php150Mil of gross profit last year, this implies a y/y decline of 50 basis points. However, management clarified that the decline was due to a change in accounting treatment which moved items down from gross profit to other income. Adjusting for this, gross margin of Puregold stores was flattish at 15.5% in 1H15, in line with our expectations.

Raising FV to Php55/sh on rollover, maintain BUY rating

We are raising our FV estimate on PGOLD to Php55/sh from Php50/sh as we rollover to end-2016 estimates. We are also maintaining our BUY rating on PGOLD as valuations on the stock remain cheap. At its current price of Php32/sh, the stock is being valued at 16.5X 2016E P/E, a discount relative to the 17.7X P/E of the market and the 20.5X P/E of other consumer stocks.

- COL Financial

Puregold takes in Japan's Lawson for a cut in Philippine convenience store business

Puregold Price Club Inc., operator of the supermarket chain bearing its namesake, is entering the convenience store business, clinching a deal to open Japan-based Lawson Inc. convenient stores in the Philippines.

 

In a disclosure to the Philippine Stock Exchange Friday, Puregold said it entered into a joint venture agreement with Lawson Asia Pacific Inc. and Lawson Inc. to build and operate convenient stores in the Philippines.

 

Puregold accounts for 70 percent in the partnership with Lawson having 30 percent.

 

Major retailers in the Philippines are expanding toward the convenience store space as competition and demand for the business grows.

 

This could be attributed to the growth of the business process outsourcing (BPO) industry and the changing lifestyle of the people due to improving income of the middle class, Peter Lee U, University of Asia and the Pacific (UA&P) School of Economics dean, said in a phone interview.

 

"The economy has been growing, helped by remittances and the BPO sector. The consumption power of the public is also increasing," he said.

 

The format, which operates 24/7, will also allow the retailers to capture the BPO market.

 

"Most convenience stores are located in commercial areas, and this is a reflection of the growing BPO, call center areas, which are also operating 24/7," U said.

 

In a separate phone interview, Puregold Investor Relations officer Jimmy Perez said the agreement, signed on June 12, formed a joint venture vehicle called DG Lawson Inc.

 

"Lawson disclosed to the Japanese Stock Exchange it targets to open 500 stores by 2020 in the [Philippines]," he said.

 

The decision to go into the convenience store business is a "natural extension of Puregold's presence in the local retail landscape," the disclosure read.

 

"It's a different format from our present businesses," Perez said. At present, the company operates hypermarkets through "Puregold Price Club," supermarkets under "Puregold Junior" and discounters through "Puregold Extra."

 

It also has S&R Membership Shopping, a wholesale and retail supermarket chain which caters mostly to registered members.

 

"We're basically going into food service with Lawson," the company official added.

 

According to its website, Lawson is a Japanese retailer which operates over 11,000 convenience stores throughout Japan. It also operates stores in China, Thailand, Indonesia and Hawaii.

 

 

In April, the SM Group said it intends to operate convenience stores this year as part of its business expansion and strategy.

 

The Villar group of former Senator Manuel B. Villar is also joining the fray via All Day which was originally called Finds Store.

 

In November 2012, Ayala Land brought Japanese convenience store FamilyMart into the Philippines after its joint venture with Tantoco-led Rustan's group signed a shareholder agreement with FamilyMart Co. Ltd. and Itochu Corp. 

 

The Gokongwei group, under Robinsons Convenience Stores Inc., has been operating Mini Stop since 2001. Mini Stop is a Japanese convenience store chain owned by the Mitsubishi Group of Japan.

 

Meanwhile, Philippine Seven Corp. is the local franchise holder of 7-Eleven convenience stores.

- GMA News