Rising expenses due to the government’s decision to raise the minimum wage next year could take a toll on the earnings of Taiwan’s largest convenience store chain operator, President Chain Store Corp (PCSC, 統一超商), with no sign of new growth drivers after its share sale in President Starbucks Coffee Shanghai Corp (上海統一星巴克咖啡) set for early next year, analysts said last week.
The sale of a 30 percent stake in Shanghai Starbucks to the US coffee giant, a deal that is expected to receive approval from the Chinese authorities by the end of this year at the earliest, could allow the company to book disposal gains of NT$20.07 billion (US$668.7 million), or NT$19.3 per share, this quarter, Taishin Securities Investment Advisory Co (台新投顧) said in a note on Thursday.
Shanghai Starbucks, Taiwan’s President Starbucks Coffee Corp (統一星巴克) and its Philippine 7-Eleven franchise, Philippine Seven Corp, are the three most important businesses for the company beside its local convenience store business.
In the first three quarters of the year, President Chain saw net profit grow 9.72 percent annually to NT$8.62 billion and cumulative revenue increase 2.48 percent to NT$165.46 billion, while gross margin advanced from 32.8 percent to 33.17 percent, the company reported last month.
In August, the Ministry of Labor announced it will from January raise the minimum wage by 4.72 percent to NT$22,000 per month and 5.26 percent to NT$140 per hour.
Yuanta Securities Investment Consulting Co (元大投顧) estimated that this would lead to additional expenses of NT$50 million to NT$55 million for President Chain’s directly-owned stores and NT$400 million to NT$450 million for franchisee stores next year.
In view of the expense hikes, President Chain has announced it would adjust its local 7-Eleven franchise scheme, increasing profit sharing with franchisees by 0.5 percent to foster better cooperation and stabilize the long-term business relationship.
The adjustments also include raising its monthly subsidy to franchisees from NT$10,000 to NT$14,000 per store and increasing guaranteed gross profit from NT$2.62 million to NT$3 million for authorized franchise (FC1) partners and from NT$2.5 million to NT$2.6 million for mandated franchise (FC2) partners, Yuanta said in a note on Tuesday.
Under the FC1 agreement, franchisees receive 63 percent of the gross profit from President Chain, but must cover the cost of wages, and securing and fitting out properties, while FC2 deals award franchisees a lower proportion — between 33 percent and 51 percent — of the gross profit in exchange for President Chain covering those costs.
Yuanta said the adjustments would have a negative impact on the company’s bottom line next year.
“We expect the additional expenses … to amount to roughly NT$500 million, which would have a 3.8 percent negative impact on PCSC’s 2018 operating profit,” Yuanta said.
Shares in President Chain fell 3.5 percent last week to close at NT$275.5 in Taipei trading on Friday. This year, the stock has risen 19.26 percent, compared with the main bourse’s 12.37 percent increase over the period, Taiwan Stock Exchange data showed.
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