President Chain Store Corp share prices disappoint

By Kevin Chen  /  Staff reporter

Mon, Nov 05, 2012 - Page 13

President Chain Store Corp’s (統一超商) has seen its share price underperform the TAIEX by about 12 percent so far this year, but the company’s better-than-expected results for the third quarter showed its business momentum would remain robust this quarter, analysts said.

In the three months ending on Sept. 30, President Chain, operator of Taiwan’s largest convenience store chain 7-Eleven, reported a net income of NT$2.17 billion (US$74.1 million), up 26.68 percent from the second quarter and 19.68 percent from the same period of last year, according to the company’s filing to the Taiwan Stock Exchange.

Revenue in the third quarter hit NT$35.79 billion, up 7.02 percent quarter-on-quarter and 10.9 percent year-on-year.

Gross margin fell to 28.9 percent from 29.6 percent in the second quarter, but operating margin improved to 4.54 percent from 4.0 in the second quarter, the filing showed.

Fubon Securities Investment Services Co (富邦投顧) analyst Chole Wu (吳致勤) said the strong quarter-on-quarter profit growth reflected the results of higher seasonal sales and contributions from the company’s newly launched 7-Select products such as cool clothing, laundry detergent and LED light bulbs.

STRONG PRODUCT MIX

While the costs of aggressive promotions for fresh food and point-collection activities placed pressure on the company’s gross margin in the third quarter, the retailer’s product mix is still strong, Wu said.

“We think the high-margin private-label products and good operating expense control will offset the burden, and the company’s impressive third quarter results reaffirm our confidence,” Wu said in a note on Monday last week.

Fubon maintained its “add” recommendation on President Chain’s shares and offered a target price of NT$177 for the stock which ended 2.46 percent higer on Friday at NT$145.5 in Taipei trading.

The stock has declined 11.82 percent since the beginning of the year, compared with the TAIEX’s 1.96 percent increase in the period, according to Taiwan Stock Exchange’s data.

Credit Suisse analysts Chung Hsu (許忠維) said in a separate note that the better-than-expected third-quarter results and the government’s decision to delay increases in electricity rates until October next year bode well for President Chain’s business next year.

FORECASTS

The brokerage now forecasts President Chain’s net income to increase 3.2 percent this year to NT$6.55 billion, or NT$6.30 per share, with a target price of NT$140, up from NT$137.

However, CLSA Asia-Pacific Markets said President Chain’s third-quarter proft was partially boosted by a NT$197 million in investment gains from a 1.24 percent stake sale of 7-Eleven Philippines.

CLSA said the retailer would still face challenges due to a slowdown in consumer purchasing and higher market competition at home, as well as weakening gains from its domestic subsidiaries, cutting its target price to NT$130 from NT$140.