Robinsons Retail Holdings, Inc. (PSE: RRHI, the Company) has the following corporate structure:
RRHI operates the second largest supermarket chain in the Philippines under the Robinsons Supermarket brand name. Robinsons Supermarket is focused on selling middle- to high-end products to consumers with relatively high disposable income. The Company claims to be the first supermarket chain positioned to focus on health and wellness products as differentiation from other competitors. Based on the initial allocation of initial public offering (IPO) proceeds, 52% will be allocated for the expansion and addition 1.3% will be allocated for renovation of existing stores.
Breakdown of Robinsons Supermarket stores are as follows:
As of June 30, 2013, 63 out of 75 supermarkets were located inside shopping malls of which, 30 were located in shopping malls operated by Robinsons Land Corporation (RLC) and 33 others are located in shopping malls operated by major real estate developers such as Ayala Land, Inc., Megaworld, and Federal Land, Inc. The remainder 12 supermarkets are located in densely populated residential neighborhoods and commercial centers. The Company intends to expand the number of supermarket stores through RLC’s properties, properties and developments of reputable real estate developers, and penetration to new regions in the Philippines which are largely underserved by large-scale national supermarket chains.
The ranking of top supermarket players are as follows:
RRHI operates department stores through Robinsons Department Store (RDS) brand name. The Company through RDS aims to provide “all-in-one” shopping experience to customers by offering broad range of products and services. RDS offer merchandise across men’s wear, ladies’ wear, children’s wear, shoes, bags and accessories, and household items. RDS also provides ancillary services to customers, a strategy to improve customer traffic, such as bills payment for basic utilities, show and concert tickets, and foreign exchange transactions through in-store Robinsons Business Center.
Breakdown of RRHI’s department stores are as follows:
As of June 30, 2013, all 36 RDS stores are located in shopping malls of which, 21 were located in shopping malls operated by RLC and the remainder on shopping malls operated by Ayala Land, Inc. and Filinvest Land Inc. RDS is currently focused on building strong and stable relationships with a number of reputable property developers, and expanding in more regional geographical and key cities such as Maxilom of Cebu City, San Pedro of Laguna, Jaro of Iloilo, and Tuguegarao of Cagayan Valley while continuing to pursue opportunities in Metro Manila. Based on the initial allocation of IPO proceeds, 5.2% will be allocated for store expansion while 1.8% will be allocated for renovation of existing stores.
Do It Yourself (DIY) stores or home improvement and gardening stores of RRHI are under the brand names “Handyman Do it Best”, “True Value” and “Howards Storage World.” The Company’s DIY stores are located in RLC malls, major shopping centers, and other key commercial centers. DIY stores of the Company target the middle and high income market.
As of June 30, 2013, the Company’s 114 DIY stores are broken down as follows:
Based on the initial allocation of IPO proceeds, 3.6% will be allocated for expansion while 1% will be allocated for renovation of existing stores.
The ranking of DIY store market players are as follows:
RRHI participates in the convenience store market through the brand name “Ministop.” Ministop is a 25-year franchise of a Japanese chain convenience stores and commenced operations in the Philippine in 2000. RRHI is the master franchisee of Ministop here in the Philippines which means the Company may sub-franchise Ministop stores.
The Company screens potential franchisees and requires compliance on standards, policies and procedures as well as minimum revenue targets. The Company generates revenues from franchise through the sale of merchandise to franchisees, royalties based on percentage of sales, and one-time cash inflow franchise fees. The franchisees may prefer to have all the operating expenses shouldered by the Company on a higher royalty fee or the franchisee shoulder all the operating expenses for a lower royalty fee.
Breakdown of Ministop stores are as follows:
The Company intends to pursue expansion plan for Ministop focusing on new location in the Philippines which includes, Northern Luzon, the Bicol region, eastern and western Visayas and Mindanao. Ministop enjoys synergies with Robinsons Supermarket in the sourcing of merchandise. Robinsons Supermarket is capable of negotiating for lower prices of merchandises bought because of scale. The lower cost merchandises are distributed to Ministop stores enabling the convenience store segment to report higher margins. Based on the initial allocation of IPO proceeds, 12.2% will be spent for expansion and 1.1% will be spent for renovation of existing stores.
The Company’s participation in the drug store business began in July 2012 with the purchase of 90% interest of South Star Drug, Inc. (SSDI) (SSDI owns “South Star Drug” and “Manson Drug,” South Star Drug will refer to both South Star Drug and Manson Drug). For the year ended December 31, 2012 and June 30, 2013, SSDI contributed 2.4 billion and 3 billion revenues to the Company respectively.
Operating formats used by SSDI are as follows:
The Company plans to expand the network of South Star Drug stores by establishing more drug stores with self-service sections and in order to get be in prime locations, South Star Drug stores will be co-located in Ministop convenience stores. The Company will leverage South Star Drug’s affiliation with Robinsons Supermarket through co-location wherever possible in order to enhance geographic footprint. In addition to expansion plans, the Company plans to acquire independently-operated drug stores to accelerate expansion. Based on the initial IPO proceeds allocation, 4.9% of proceeds are allocated for expansion of drug stores and 1.1% for renovation.
The effect of the IPO issuance has the following changes in the outstanding shares of the Company:
Below are the Company’s financial highlights:
Notice that the Company reported P1.2 billion net income for the first half of 2013 which is almost equal to the full year net income of the Company in 2012. The surge of RRHI net income in 2012 to P1.3 billion from P476 million was primarily due to RRHI’s better cost management which improved operating margin to 2% from 1% and growth of supermarket, department store, and DIY segments which collectively contributes 83% of the total gross profits.
For 2013, I expect the supermarket, department store, and DIY to drive the growth of RRHI. Assuming that same level of revenue growth will be maintained by the Company and the profit margin of 4% in June 30, 2013 will be maintained, we can have the following calculations:
*Drug store revenues is based on full year revenues of SSDI in 2012
At an IPO price of P58, RRHI is trading at 29x PE ratio based on forecasted 2013 earnings.
Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell. Read more in the ABOUT page.