FRI 25 AUG 2017

Companies deliver mixed results

Profits grow by only 8.8% in 1H17

CONCEPCION INDUSTRIAL CORPORATION
Median earnings growth of consumer companies that we monitor slowed down to only 8.8%
SELL
in 1H17 from 12.8% in 1Q17 as most food manufacturers, namely EMP, URC, and PIP, reported PHP48.30
lower earnings in 2Q17. EMP and URC suffered from intense competition and higher input costs,
while PIP attributed the drop in earnings to the high base in 1H16 brought about by election CENTURY PACIFIC FOOD, INC.
related spending. Although CNPF managed to increase profits by 7.9% in 1H17, growth might HOLD
not be sustainable for the rest of the year as it is also facing pressure from intense competition PHP17.30

and higher tuna prices.

D&L INDUSTRIES, INC.
HOLD
However, retailers performed well, with PGOLD, RRHI, MRSGI, WLCN and SSI enjoying a median PHP11.80
profit growth of 14.1% during 1H17. With the exception of SSI which was still in the process
of rationalizing its stores, all retailers posted higher revenues during the first half, driven EMPERADOR, INC.
by expansion and positive same store sales growth. Retailers also enjoyed better margins as BUY
PHP8.07
the competitive environment in the retail industry improved, lessening the need for heavy
discounting, and improving their ability to pass on higher costs to customers. JOLLIBEE FOODS CORPORATION
HOLD
Restaurants also performed well, with median growth in revenues reaching 13.6% in 1H17. PHP226.00
Although restaurants also suffered from higher raw material prices, operating profits still
registered a median growth rate of 8.6% as restaurants were able to pass on some of the increase PUREGOLD PRICE CLUB, INC.
BUY
in cost through higher selling prices. Among the restaurants, PIZZA was also able to enjoy
PHP56.00
synergies with its new parent, the Century Pacific group.
ROBINSONS RETAIL HOLDINGS, INC.
Out of the eight consumer companies that we cover, five companies (CIC, CNPF, JFC, PGOLD, and BUY
RRHI) performed in line with expectations. Meanwhile, three companies (DNL, EMP, and URC) PHP99.00
missed our expectations. Although CNPFs results were in line with our forecast, it warned that
UNIVERSAL ROBINA CORPORATION
profits could disappoint in the second half, as it is facing pressure from intense competition and
HOLD
higher tuna prices. PHP161.00

ANDY DELA CRUZ

RESEARCH ANALYST
andy.delacruz@colfinancial.com

JUSTIN RICHMOND CHENG

RESEARCH ANALYST
justin.cheng@colfinancial.com

Disclaimer: All content provided in COL Reports are meant to be read in the COL Financial website. Accuracy and completeness of content cannot be guaranteed if reports are viewed outside of
the COL Financial website as these may be subject to tampering or unauthorized alterations.
 CONSUMER SECTOR I COMPANIES DELIVER MIXED RESULTS

FRI 25 AUG 2017

Exhibit 1: Consumer sector earnings summary

% of Full year Forecast
in PhpMil 2Q16 2Q17 %Change 1H16 1H17 %Change
COL Consensus
CIC 351 353 0.6 533 570 6.9 57.7 55.4
CNPF 725 767 5.8 1,362 1,469 7.9 52.8 50.4
DNL 681 688 1.0 1,256 1,350 7.5 42.1 43.8
EMP 2,034 1,200 (41.0) 3,439 2,698 (21.5) 33.6 36.2
JFC 1,656 1,956 18.1 3,054 3,489 14.2 52.1 51.9
PGOLD 1,113 1,213 9.0 2,267 2,488 9.7 40.0 40.5
RRHI 1,238 1,286 3.9 2,023 2,282 12.8 41.8 42.9
URC* 3,850 3,195 (17.0) 7,675 7,095 (7.6) 45.2 -
MAXS 131 155 18.3 294 329 11.9 - 45.8
MRSGI 209 305 45.9 262 401 53.1 - 41.7
PIP 400 375 (6.3) 559 468 (16.3) - 45.5
PIZZA 228 199 (12.7) 365 372 1.9 - 49.5
SSI 119 140 17.6 241 275 14.1 - 44.2
WLCON 291 373 28.2 347 763 119.9 - -
Median 4.8 8.8

Source: Company data, COL Estimates, Bloomberg

*recurring income

Revenue growth remains intact

Consumer companies registered median revenue growth of 9.4% in 2Q17, slightly dragging
median revenue growth in 1H17 to 10.6%. Among the consumer companies, EMP, PIP, and
SSI reported lower earnings y/y. EMPs sales were dragged by intense competition in the local
liquor industry. PIP registered lower revenues largely due to a high base effect caused by the
election-related spending last year. Lastly, SSIs revenues were still tempered by its on-going
store rationalization with the company having closed 72 stores over the past 12 months.

Exhibit 2: Consumer sector revenue summary

in PhpMil 2Q16 2Q17 %Change 1H16 1H17 %Change

CIC 3,925 4,064 3.5 6,641 7,186 8.2
CNPF 6,608 8,570 29.7 13,005 16,048 23.4
DNL 5,655 6,473 14.5 10,282 12,739 23.9
EMP 8,933 8,827 (1.2) 17,792 17,796 0.0
JFC 28,323 32,553 14.9 54,425 61,842 13.6
PGOLD 26,296 29,042 10.4 51,058 56,576 10.8
RRHI 25,638 27,763 8.3 48,334 53,486 10.7
URC 26,924 30,106 11.8 55,456 60,795 9.6
MAXS 2,757 3,136 13.7 5,435 6,045 11.2
MRSGI 8,344 8,518 2.1 15,910 16,438 3.3
PIP 8,531 8,278 (3.0) 15,532 15,125 (2.6)
PIZZA 1,454 1,711 17.7 2,784 3,377 21.3
SSI 4,267 4,162 (2.5) 8,582 8,418 (1.9)
WLCON 4,008 4,296 7.2 7,675 8,478 10.5
Median 9.4 10.6

Source: Company data

COL Financial Group, Inc. 2

 CONSUMER SECTOR I COMPANIES DELIVER MIXED RESULTS

FRI 25 AUG 2017

Food manufacturers see largest gross margin drop

Median gross profit margin (GPM) of consumer companies was 45 bps lower in 2Q17, bringing
1H17 median drop in GPM to 10 bps. Food manufacturers (CNPF, DNL, EMP, and URC) were
largely the reason for the said decline. CNPFs revenue mix tilted more towards its OEM tuna
exports (single digit GPM) due to the rise in skipjack tuna prices. This, in turn, also lowered
margins for its branded fish products, causing its GPM in 1H17 to drop by around 350 bps.
Similarly, DNLs refined vegetable oil (RVO) segment suffered a steep drop in GPM due to high
coconut oil prices, which also caused revenues from RVO to account for a bigger chunk of
DNLs total revenues. EMP, on the other hand, suffered from higher excise taxes (which EMP
shouldered), weaker peso, and an unfavourable sales mix. Finally, URC failed to pass on higher
raw material costs to its consumers given the intense competitive environment.

Retailers enjoy better gross margins as competition eases

With the exception of SSI, most retailers (PGOLD, RRHI, SM, MRSGI, WLCON) enjoyed better
margins during the second quarter despite higher prices of goods. Margins improved as retailers
were in a better position to pass on higher supplier costs given easing competition. Retailers
also attributed the improvement in margins to sustained supplier support and improved sales
mix leaning towards higher margin products. Only SSIs gross profit margins were lower y/y;
however, on a quarter-on-quarter basis gross margins have more or less stabilized between
48-49% following its less aggressive promotions and discounts this 2017.

Exhibit 3: Consumer sector GPM summary

in PhpMil 2Q16 2Q17 Change (bps) 1H16 1H17 Change (bps)
CIC 36.3 35.9 (40) 35.9 36.3 40
CNPF 30.2 25.6 (460) 30.2 26.7 (350)
DNL 18.6 17.2 (140) 18.9 17.0 (190)
EMP 38.8 32.8 (600) 33.9 33.4 (50)
JFC 19.2 19.0 (20) 18.6 18.5 (10)
PGOLD 15.8 16.4 60 16.2 16.6 40
RRHI 21.8 22.4 60 21.5 22.3 80
URC 32.7 31.2 (150) 32.6 31.7 (90)
MAXS 29.1 26.7 (240) 27.9 26.7 (120)
MRSGI 20.6 22.4 180 20.0 21.3 130
PIP 23.8 23.6 (20) 23.1 23.0 (10)
PIZZA 33.0 30.3 (270) 29.0 30.1 110
SSI 49.8 49.3 (50) 50.1 48.8 (130)
WLCON 24.3 30.2 590 26.6 30.2 360
Median (45) (10)
Source: Company data

COL Financial Group, Inc. 3

 CONSUMER SECTOR I COMPANIES DELIVER MIXED RESULTS

FRI 25 AUG 2017

SSSG remains healthy amidst high base

Retail revenues increased 6.4% y/y to Php143.9Bil in 2Q17. Growth was slower than the 12.5%
increase recorded in the same period last yar. Nevertheless, this was largely due to the high
base in the second quarter of last year, which was the peak of the election period. Furthermore,
1H17 same-store-sales growth (SSSG) remained healthy. Only SSI, recorded negative SSSG
for the first half as the company continued closing down unprofitable stores as part of its
rationalization program.

Exhibit 4: Retail subsector revenues

Revenues Revenues SSSG
in PhpMil %Change %Change
2Q16 2Q17 1H16 1H17 1H16 1H17
MRSGI 8,344 8,518 2.1 15,910 16,438 3.3 5.0 1.0
PGOLD 26,296 29,042 10.4 51,058 56,576 10.8 6.1 5.2
RRHI 25,638 27,763 8.3 48,334 53,486 10.7 8.9 2.7
SM Retail 66,768 70,200 5.1 124,151 131,600 6.0 * 1.8
SSI 4,267 4,162 (2.5) 8,582 8,418 (1.9) 2.3 (0.5)
WLCON 4,008 4,296 7.2 7,675 8,478 10.5 - 5.7
Total 135,321 143,981 6.4 255,710 274,996 7.5

Source: Company data

*post consolidation figure not available

COL Financial Group, Inc. 4

 CONSUMER SECTOR I COMPANIES DELIVER MIXED RESULTS

FRI 25 AUG 2017

IMPORTANT RATING DEFINITIONS

BUY
Stocks that have a BUY rating have attractive fundamentals and valuations based on our analysis. We expect the share price to outperform the market in the next six to
12 months.

HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might be poor
or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the next six to twelve
months.

SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.

IMPORTANT DISCLAIMER
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount invested.
Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said information may be
incomplete or condensed. All opinions and estimates constitute the judgment of COLs Equity Research Department as of the date of the report and are subject to change
without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial and/
or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies mentioned in this report and may trade
them in ways different from those discussed in this report.

COL RESEARCH TEAM

APRIL LYNN TAN, CFA

VP & HEAD OF RESEARCH
april.tan@colfinancial.com

CHARLES WILLIAM ANG, CFA GEORGE CHING RICHARD LAEDA, CFA

DEPUTY HEAD OF RESEARCH SENIOR RESEARCH MANAGER SENIOR RESEARCH MANAGER
charles.ang@colfinancial.com george.ching@colfinancial.com richard.laneda@colfinancial.com

FRANCES ROLFA NICOLAS ANDY DELA CRUZ JUSTIN RICHMOND CHENG

RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
rolfa.nicolas@colfinancial.com andy.delacruz@colfinancial.com justin.cheng@colfinancial.com

KYLE JEMMRIC VELASCO JOHN MARTIN LUCIANO ADRIAN ALEXANDER YU

RESEARCH ANALYST RESEARCH ANALYST RESEARCH ANALYST
kyle.velasco@colfinancial.com john.luciano@colfinancial.com adrian.yu@colfinancial.com

COL FINANCIAL GROUP, INC.

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COL Financial Group, Inc. 5