Regional Industry Focus

ASEAN Grocery Retail

Refer to important disclosures at the end of this report

DBS Group Research . Equity 17 Apr 2018

Shop with a top-down approach STI : 3,497.19 KLCI : 1,878.76

SET : 1,767.17 JCI : 6,286.75
 December quarter earnings ended mixed as Thailand PCOMP : 7,870.25
and Singapore outperformed Indonesia and Philippines
Analyst
Alfie YEO +65 6682 3717
 Positive on Singapore and Thailand’s modern grocery alfieyeo@dbs.com
retailers based on country fundamentals
Andy SIM, CFA +65 6682 3718
 Adopt top-down stock-pick strategy on markets with andysim@dbs.com
firm fundamentals
CHEAH King Yoong +60 32604 3908
 Sector top picks are SSG, DFI, BJC and CPALL cheahky@alliancedbs.com

Namida Artispong +66 2857 7833

December-ended quarter earnings were mixed. Earnings for namidaa@th.dbs.com
ASEAN grocery retailers in the December-ended quarter saw
Thailand exceeding expectations, Singapore-listed grocers’ Tiesha PUTRI +6221 30034931
tiesha.narandha@id.dbsvickers.com
earnings in line, Indonesia and Philippines grocers
underperforming. The varied country performances were Regional Research Team
largely a function of domestic consumption fundamentals and
operating environment. Domestic fundamentals for grocery
retail in Singapore and Thailand remain strong, while that for
Indonesia and Philippines were weaker.

Fundamentals for Singapore and Thailand remain strong. STOCKS

12-mth
We are most bullish on Singapore and Thailand grocery retail
Price Mkt Cap Target Price Performance (%)
markets across ASEAN. In Singapore, there is more room for Bt US$m Bt 3 mth 12 mth Rating
growth as HDB has lined up at least 11 new supermarket
properties for bidding over the next six months. Although CP ALL 87.00 25,043 95.00 N.A N.A BUY
Berli Jucker Public 56.25 7,205 70.00 N.A N.A BUY
online grocery retail is a fast-growing segment, its market Co. Ltd
Dairy Farm 8.27 11,186 9.77 2.0 (4.7) BUY
share remains low at <3% of the whole grocery market. In Sheng Siong 1.01 1,159 1.20 9.2 2.0 BUY
Thailand, we expect better macro fundamentals and broad- Group LtdPutra
Matahari 394 154 380 (7.5) (60.6) HOLD
based recovery including better public investment, investment Prima
Robinsons Retail 84.00 2,236 87.00 (14.2) 7.7 HOLD
Holdings Price
Puregold 51.95 2,761 44.30 (3.8) 23.1 UNDER
sentiment, and industrial capacity to support consumption Club REVIEW
growth.
7-Eleven 1.48 423 n/a (2.6) (12.4) NR
Mynews Holdings 1.50 263 n/a 0.7 39.5 NR
Advocate top-down stock-pick strategy. Our stock picks are
Source: DBS Bank, DBSVTH, DBSVI, First Metro Securities, Bloomberg Finance
formulated via a top-down approach, as the operational
L.P.
environment, demand as of December-ended quarter remain
Closing price as of 16 April 2018
weak for Indonesia, Philippines and Malaysia, while Thailand
and Singapore offer the best macro environment for grocery
stocks to deliver earnings growth.

Top picks. Sector valuations are at 27x forward PE. Top picks
are Dairy Farm [DFI SP, BUY], Sheng Siong [SSG SP, BUY], Berli
Jucker [BJC TB, BUY] and CP ALL [CPALL TB, BUY]. We
upgraded Dairy Farm’s target price and downgraded Robinsons
Retail Holdings after its deal with Robinsons Retail Holdings to
sell Rustan Supercenter Inc. for an 18% stake in RRHI. We have
Robinsons Retail and Matahari Putra on HOLD given that they
are showing lacklustre operational performance due to weak
demand and challenging cost conditions.

ed: TH / sa:YM, PY, CS

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 Industry Focus
ASEAN Grocery Retail

Table of Contents

Results review – Strong performance from Singapore and Thailand grocers 3

Singapore – No online threat, more upcoming HDB shops to be available for bidding 6

Thailand – Improving economy to support consumption 9

Indonesia – Weak operating environment 12

Malaysia – Cost challenges with high valuation 14

Philippines – Inflation and tax reform to dampen outlook 16

Company Guides 19

CP ALL

Berli Jucker Public Co. Ltd

Dairy Farm

Sheng Siong Group Ltd

Matahari Putra Prima

Robinsons Retail Holdings

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 Industry Focus
ASEAN Grocery Retail

Results review – Strong performance from Singapore and Thailand grocers

ASEAN saw mixed earnings for quarter-ended December 2017 Moderately strong SSSG for most grocers which disclosed
their figures. Same-store-sales growth (SSSG) was generally
4Q17 results were mixed. December-ended quarter saw mixed positive across ASEAN for major modern grocery retailers. The
results with companies’ earnings performance tied strongly to only exception was 7-Eleven Malaysia which saw a negative
their domestic economies. Singapore- and Thailand-listed stocks SSSG due to a weak retail environment. SSSG continued to be
generally performed well while those in Indonesia, Malaysia and within reasonable levels of 0-5%. Sheng Siong, BIG C (Berli
Philippines reflected challenges in their respective domestic Jucker) and CP All were the strong performers.
markets.
SSSG generally positive except for 7-Eleven Malaysia
ASEAN Grocers' December 2017-ended results 20.0%
Big C Supercenter Siam Makro
Dec-end result Note CP ALL Sheng Siong
7-Eleven Malaysia RRHI
Sheng Siong In line Gross margins improved
Dairy Farm In line Core profit in line
CP All Above Lower taxes
Berli Jucker n/a New coverage
Alfamart n/a Not covered
Matahari Prima Putra Below One-off inventory clearance
Puregold In line Margin decline Discontinued unprofitable sales
including bulk sales of alcohol,
cigarettes and discount coupons
Robinsons Retail Below Dragged by department store for other bulk merchandise.
7-Eleven n/a Not covered
-25.0%
Mynews Holdings n/a Not covered 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17

Source: DBS Bank

Source: DBS Bank

Thai and Singapore grocers outperforming the rest of ASEAN.

Long-term consumer sentiment generally positive. General
Singapore stocks saw relatively stable demand environment,
consumer sentiment in ASEAN remains buoyant compared to
with concerns over online threat yet to come through as
two years ago. The longer-term trend remains generally
consumer demand continues to be largely in-store. Thailand
positive, though we may have seen short-term weaknesses in
has shown strong demand and store growth with companies
some markets in recent quarters. Except for Philippines which
showing better margins. Malaysia has been difficult with
is implementing tax reform and Indonesia, quarterly consumer
challenging cost environment. Indonesia has seen slowdown
sentiment saw an uptick in Malaysia and Thailand based on
in demand and slowing outlook for store expansion.
the latest data.
Philippines's results were poor on weak demand and tax
reform package will likely dampen volume sales of products
Better regional consumer sentiment than two years ago
such as carbonated drinks.
130 50
Key recommendation changes 120 40
Stock Rating Rating TP 110 30
Change (TP change)
100 20
Sheng Siong BUY Unchanged 1.20 (na)
90 10
Dairy Farm BUY Unchanged 9.77 (+)
80 0
CP All BUY Unchanged 95.00 (na)
Berli Jucker BUY Unchanged 70.00 (na) 70 -10

Matahari Prima Putra HOLD Unchanged 380 (-) 60 -20

MY TH ID PH (RHS)
Puregold NA Under review 44.30 (prev) 50 -30
Mar-07

Mar-08

Mar-10

Mar-11

Mar-12

Mar-13

Mar-16

Mar-17

Mar-18
Mar-09

Mar-14

Mar-15
Sep-07

Sep-10

Sep-11

Sep-12

Sep-13

Sep-15

Sep-16

Sep-17
Sep-08

Sep-09

Sep-14

Robinson’s Retail HOLD Downgrade 87.00 (-)

Source: DBS Bank
Source: Bloomberg Finance L.P., DBS Bank

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 Industry Focus
ASEAN Grocery Retail

Current grocery market fundamentals in ASEAN Our coverage universe trades at an average of 25x PE
Market Market fundamentals (x)
40.0
Singapore Online threat remains small
Thailand Strong demand and margin growth
35.0 +2sd: 34.7x
Indonesia Weak demand environment, players strategising
Philippines Demand to be affected by TRAIN tax laws 30.0 +1sd: 30.4x

Malaysia Higher opex and mixed top line observed

Avg: 26x
Source: DBS Bank 25.0

-1sd: 21.7x
Highest growth format remains Supermarkets in Singapore 20.0
-2sd: 17.3x
and Convenience Stores in developing ASEAN. While
prospects of ASEAN Grocery Retail have the highest long-term 15.0
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
growth rates pegged to convenience stores across ASEAN ex-
Singapore (According to Euromonitor 5-year growth rates), Source: DBS Bank
the current demand and operating environment especially in
Malaysia and Indonesia convenience stores suggest weak Top picks are DFI, SSG, CPALL and BJC. We favour stock picks
fundamentals in the form of near-term macro, competitive from Singapore and Thailand, with Singapore largely based
and operational challenges. on valuation and Thailand on growth. We like Dairy Farm (DFI
SP, BUY) for its attractive valuation. Core PE ex RRHI and
Top-down stock-pick strategy ranks Singapore and Thailand Yonghui is valued at 18x. Sheng Siong (SSG SP, BUY) provides
stocks the highest stable earnings, yield and resilience to volatility in earnings
and stock price/market movement due to its low beta of
Top-down selection approach ensures circumvention of stocks <0.5x. We see earnings growth from margin expansion at
exposed to weak macro environment. We are adopting a top- Berli Jucker (BJC TB, BUY) driven by its glass business, while
down stock-picking strategy for this sector at the current BigC should see positive SSSG and outlet growth. CP ALL
moment as this ensures that our preferred picks are operating (CPALL TB, BUY) will continue to see store expansion of at
in a stronger macro environment. We look to avoid stocks least 700 a year and better margins will come from more
exposed to weak domestic macro environment as well. As an high-margin products and better cost management.
initial stock positioning strategy, all our picks will have
exposure to a more fundamentally stable operating Stock picks and drivers
environment. Stock Rating Driver
Sheng Siong BUY New stores to drive growth
Singapore and Thailand’s fundamentals relatively stronger Dairy Farm BUY Core business undervalued
than that in Indonesia, Philippines and Indonesia. Among the CP All BUY Store expansion and margins
key ASEAN markets, both Singapore and Thailand have Berli Jucker BUY Store expansion and margins
sounder grocery retail macro fundamentals and operating Matahari Prima HOLD Higher interest costs a drag
environment. 1) SSSG momentum for both Singapore and Puregold Under Review Macro challenges/competition
Thailand was positive; 2) the consumption environment in Robinson’s Retail HOLD Rustan acquisition a drag
both markets continue to be strong if not stable; 3) both Source: DBS Bank
markets have less economic uncertainties compared to
Philippines (tax reform), Indonesia and Malaysia (weak Neutral on RRHI and MPPA. We have neutral calls on
consumption environment), with Singapore deferring GST Robinsons Retail Holdings (RRHI PM, HOLD), and Matahari
increase till at least 2021 and Thailand’s economy improving Prima Putra (MPPA IJ, HOLD). Puregold (PGOLD PM, UNDER
on a broader-based recovery. REVIEW), is under review following recent results
announcement.
Sector trades at 27x forward PE. The ASEAN Grocery Retail
sector trades at a valuation of 27x forward PE and close to
our coverage universe’s long-term average. Markets with the
higher-valuation stocks include Indonesia, Malaysia, and
Thailand.

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ASEAN Grocery Retail

Peers trade at an average of 27x forward PE

12 mth M ark et Operat ing Net Div idend
TP Cap P/BV P/Sales ROE M argin M argin Y ield
Company Rat ing (S$m) Px Last PE (A ct ) PE (Y r 1) PE(Y r 2) (x) (x) (%) (%) (%) (%)
Sout h East A sia Ret ailers
DairyFarm Intl BUY 9.77 14,669 8.27 23.5x 21.5x 19.9x 5.8x 1.0x 29% 4.0% 4.5% 2.5%
CP ALL BUY 95 32,900 87.00 39.3x 34.0x 29.4x 8.8x 1.5x 28% 6.8% 4.4% 1.5%
Siam Makro NOT RATED n/a 9,598 47.50 36.9x 33.7x 32.3x 13.0x 1.2x 37% 4.3% 3.3% 2.0%
Puregold HOLD 44.30 3,627 51.95 24.0x 21.9x 19.9x 2.7x 1.1x 13% 7.1% 4.9% 0.6%
Robinsons Retail HOLD 87 2,937 84.00 23.4x 24.0x 21.9x 1.8x 1.0x 9% 5.2% 4.1% 0.8%
Sumber Alfaria NOT RATED n/a 2,217 560 77.4x 39.6x 38.5x 4.6x 0.4x 6% 1.7% 0.5% 0.8%
Matahari Putra HOLD 380 202 394 nm nm nm 1.4x 0.2x 1% 1.0% 0.1% 0.0%
PSC NOT RATED n/a 2,293 120 68.9x NaN NaN 15.0x 2.8x 24% 6.1% 4.1% 0.3%
Sheng Siong BUY 1.20 1,519 1.01 21.8x 21.0x 19.6x 5.2x 1.8x 26% 9.0% 8.5% 3.3%
Hero Supermarket NOT RATED n/a 373 935 nm NaN NaN 0.8x 0.3x -4% -1.9% -1.5% n/a
Bison Cons NOT RATED n/a 346 1.50 18.6x 15.3x 12.9x 2.3x 1.1x 16% 9.4% 7.4% 1.0%
7 Eleven NOT RATED n/a 617 1.48 26.9x 23.1x 20.6x 26.7x 0.6x 130% 4.1% 2.8% 3.5%
Berli J ucker BUY 70.0 9,466 56.25 42.7x 33.4x 29.6x 2.0x 1.4x 6% 8.7% 4.2% 1.5%
Regional av erage 29.3x 26.7x 24.5x 6.9x 1.1x 24% 4.9% 3.5% 1.5%

Source: DBS Bank, DBSVTH, DBSVI, First Metro Securities, Bloomberg Finance L.P.

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ASEAN Grocery Retail

Singapore – No online threat, more upcoming HDB shops to be available for bidding

Results within expectations despite Amazon’s entry into More positive supermarket retail sales recovery in 2017 vs
Singapore 2016
% chg y-o-y
SGX-listed grocers’ earnings were within expectations. Full- 8

year December 2017 core results for both Dairy Farm and 6
Sheng Siong came in within expectations, notwithstanding
4
Dairy Farm had a one-off business restructuring costs relating
to store closures which led to headline profit coming in below 2
expectations.
0

Sheng Siong unfazed, despite the entry of Amazon prime in -2

2H17. Despite the entry of Amazon Prime in 2H17, results for -4

Sheng Siong remained unfazed as market demand for
-6
supermarkets remained stable. There was no letup in both

Dec-11

Dec-16
Mar-13
Jun-09

Jun-14
Sep-10

Apr-15
Sep-15
Apr-10

May-12

May-17
Jul-11

Jul-16
Jan-09

Jan-14
Nov-09

Nov-14
Feb-11

Feb-16
Oct-12

sales growth (+3% y-o-y for 2H17) and sales per square feet
(psf) matrices (averaging at a robust S$1,917psf for 2H17).
Core SSSG for 3Q17 was +1.7% and +2.1% for 4Q17.
Normalised gross margin for 4Q17 was near a high at 26.5%.
Dairy Farm undergoing strategic review for Southeast Asia.
Strong FY17 performance in North Asia was offset by weaker
performance in Southeast Asia. North Asia’s Convenience
Stores and Health & Beauty segments were strongly led by
stronger visitor arrivals, but Supermarkets were weak in Hong
Kong, Taiwan and Southeast Asia. New CEO Ian McLeod,
who took helm since September 2017, has already rung in
changes to the business at both the personnel (managerial)
and storefront (merchandise and display) levels.
Underperforming stores were closed, leading to one-off
business restructuring costs. Dividend per share of 21 UScts
for the full year was maintained even though one-off charges
led to lower headline earnings. We do not see another large-
scale store closure recurring as the key closures for targeted
stores were already made.
Oct-17
Aug-13
Source: ThomsonReuters Datastream, DBS Bank
Online grocery retail sales remain small as big 3 gain market
shares on traditional grocery retail channels
Online remains small at <3% of the market though growing
fast. Online’s share of grocery retail remains small in
Singapore, though fast growing. Singapore’s Modern Grocery
Retail (MGR) market is worth S$6bn. Based on our estimates,
the online share of grocery retail sales is still small at less than
3%.
Internet players still dominate online grocery retail sales
but online accounts for < 3% of total MGR sales
Modern Grocery
Retail
71% Grocery chains
1%

Online sales
Supermarket sales growth momentum to continue, on decent 2%
2018 GDP growth expectation

Online players
Supermarket sales have recovered in 2017; expect Traditional grocery 1%
retail
momentum to continue in 2018 based on GDP growth of 27%
3%. Based on Supermarket & Hypermarket retail sales index
by Singstats, 2017 saw a marked recovery in sales, posting a
Source: Euromonitor, DBS Bank estimates
y-o-y increase of 1.5% to 4.5%. GDP growth in 2017 was
3.6%, up from 2% in 2016. Our economics desk forecasts
2018 GDP to be slightly slower at 3% but much stronger than
2016’s 2%, driven by the services sector. We hence expect
supermarket sales to stay positive in 2018 on the back of a
modest GDP growth outlook. January and February retail sales
for supermarkets remain healthy posting net 8.7% growth.

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 Industry Focus
ASEAN Grocery Retail

Singapore modern grocery retail market share Score competes against Lazada and Redmart’s LiveUp
Others, 9%

Sheng Siong, 14%

NTUC Fairprice,
48% Source: member.lazada.sg, DBS Bank

Alliance promotes customer loyalty within the group of

companies. These tie-ups are a way to gain customer loyalty
Dairy Farm, 29%
and to promote more intense usage of services within the
alliance. Membership fees will encourage members to spend
Source: Euromonitor, DBS Bank more and earn higher rebates that will defray and gain a
leverage on fixed membership costs.
Big 3 gaining share, traditional channels forecast to decline.
The big 3 (Dairy Farm, Sheng Siong and NTUC Fairprice) Score vs Live up membership programmes
continues to dominate over 90% of Singapore’s modern Categories Live up Score
grocery retail market while wet markets and traditional retail Groceries Redmart NTUC Fairprice
are forecast to decline at a 7-year CAGR of -4% from 2017- Transport Uber Grab
2022 (according to Euromonitor). Smaller product range, busy Concierge Ubereats
consumer lifestyle, and short opening hours of wet markets
Online entertainment Netflix
are some of the factors driving this decline.
Online marketplace Taobao
Online marketplace Lazada
More convergence between internet players and traditional
Membership fee S$49.90 S$29.901
offline players
Promotional fee S$28.80 S$182
1) first year only, second year at S$49.90
Another online membership programme launched. NTUC
2) till 18 May 2018
Fairprice and Grab on 19 March launched Fairprice-Grab
Source: Lazada, Score, DBS Bank
membership subscription programme named Score, offering
consumers rebates on supermarket purchases and discounts
Dairy Farm hives off Philippines supermarket chain Rustan
on Grab rides.

Swaps ownership in Rustan for shareholding in RRHI. Dairy

More tie-ups between payment systems and supermarkets
Farm has entered into a deal with Robinson’s Retail Holdings
in Singapore
Inc. (RRHI) to sell off its 100% stake in Rustan Supercenter
Inc. for a 12.15% stake in RRHI and in addition, it will buy
over an additional 6.1% stake in RRHI from major
shareholders comprising the Gokongwei family for US$174m
or P94 per share. Dairy Farm will own 18.25% in RRHI as a
result. Dairy Farm is giving up a business (including store
locations, ranging, supply chain, etc.) which it has improved
since it initially invested in 2012.

Positive for Dairy Farm. We see the deal as positive for Dairy
Farm as it swaps the value of a loss-making Rustan for shares
of RRHI. As of FY17, Rustan continued to be in EBIT losses as
Source: Grab.com, DBS Bank
we understand. This well compensates for the P94 per share it
is paying to the Gokongwei family for the additional 6.1%
stake, which is above market price. The stake in RRHI also
contributes another 9-12% in JV/associate income and c.3-
4% to net profit going forward.

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 Industry Focus
ASEAN Grocery Retail

Positive HDB store opening outlook, with more reasonable
market rental rates than in 4Q16
More reasonable rental rates for new HDB supermarket
biddings. Recent new HDB supermarket properties’ bidding
has remained more reasonable at around S$12-16psf.
Supermarket bidders are now more rational than in 4Q16,
where smaller players with a focus to win stores bid up rental
rates to over S$20psf.
HDB rental rates remain at S$14-16psf range
S $ psf
22
20
Maintain BUY for both Dairy Farm and Sheng Siong
Maintain BUY on SGX-listed grocers. We remain positive on
both Sheng Siong and Dairy Farm with BUY recommendations
and TPs of S$1.20 and US$9.77 respectively. Online grocery
retail, although fast growing, account for less than 3% of
Singapore’s entire Modern Grocery Retail market. We will
continue to see most transactions being made outside of
online platforms in the immediate future. Besides, more new
HDB supermarket properties will be put out over the next six
months, driving new store growth for supermarket players in
Singapore. There are 12 more units earmarked for
supermarkets in eight estates pending completion from
3Q18-2021.

18
Dairy Farm International (DFI SP, BUY, TP: US$9.77). We
16 expect store performance to strengthen at Dairy Farm.
Strategic review in Southeast Asia on store management,
14
merchandising, pricing, procurement and product range
12 amongst others will be carried out over time, to strengthen
10 store efficiency. We have also assessed that the recent deal
with Robinson’s Retail Holdings Inc. (RRHI) over Rustan
Supercenter Inc. would add US$0.23 to our TP. DFI’s core
business currently trades at 16x FY18F PE, below peer average
Source: place2lease, DBS Bank of 24x and 9-year historical average of 25x. Our target price
of US$9.77 is based on sum-of-parts valuation methodology
More new supermarkets planned in HDB estates. Upcoming comprising core business at US$7.72 using DCF, 20% and
HDB supermarket space remains robust. There will be 11 new 18% stakes in Yonghui and RRHI at market values of US$2.28
HDB supermarkets up for bidding in the next six months with and US$0.31 respectively; and net debt of US$0.54 per share
a total floor area of close to 70,000 sqft. Most stores will be (post financing of its 6.1% stake in RRHI).
mid-sized supermarkets.
Sheng Siong (SSG SP, BUY, TP: S$1.20). We see Sheng
11 new HDB supermarkets for bidding in the next six Siong’s growth driven by new stores. Sheng Siong has already
months space remains robust opened three new stores in FY18 and will open another in
April. With 11 more upcoming HDB stores for bidding in the
Estate Precinct name sqft sqm
next six months, there is scope for Sheng Siong to win more
Woodlands 693 Woodlands Ave 6 5,382 500
stores, that will benefit future growth and cashflows. Wage
Punggol West 231 Sumang Lane 5,382 500
credit extension by the government may benefit earnings and
Yishun 675 Yishun Ave 4 5,382 500
EPS as well going forward. The stock currently trades at 21x
Bukit Batok 292 Bukit Batok East Ave 6 5,382 500
FY18 PE. It also offers a dividend yield of 3.6%. Our TP of
Bukit Batok 440 Bukit Batok West Ave 8 5,382 500 S$1.20 is based on 25x forward PE.
Bukit Batok 451 Bukit Batok West Ave 6 6,458 600
Sembawang 365 Sembawang Crescent 5,382 500
Sembawang 361 Sembawang Crescent 5,382 500
Sengkang 351 Achorvale Road 5,382 500
Yishun 461 Yishun Ave 6 10,764 1,000
Woodlands 182 Woodlands St 13 8,611 800
Total 68,889 6,400
Source: place2lease, DBS Bank

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 Industry Focus
ASEAN Grocery Retail

Thailand – Improving economy to support consumption

Strong growth seen in 4Q17 SSSG for Dec ended quarter ranged from 2-4%
20.0%
Boosted by strong top-line growth and better margins. Thai
Big C Supercenter Siam Makro CP ALL
grocery players, CP ALL (CPALL) and Berli Jucker (BJC), posted
strong double-digit earnings growth for 4Q17, stemming from
solid SSSG, outlet expansion, and healthier EBIT margins.
CPALL’s 4Q17 results were ahead of our estimates on lower-
than-expected income tax expense while BJC’s earnings
figures were in line with our expectations.
Discontinued unprofitable sales
including bulk sales of alcohol,
CPALL is growing on all fronts. For CPALL, both its cigarettes and discount coupons
for other bulk merchandise.
convenience store and cash-and-carry segment (MAKRO)
businesses drove the robust earnings growth in the quarter. -25.0%

1Q12
2Q12
3Q12

3Q13
4Q13
1Q14

4Q14
1Q15
2Q15
3Q15

2Q16
3Q16
4Q16
1Q17

4Q17
4Q12
1Q13
2Q13

2Q14
3Q14

4Q15
1Q16

The group’s y-o-y earnings growth was fuelled by positive
SSSG, store expansion, fatter gross margin, lower interest
expense from the issuance of perpetual debentures, and a
lower effective tax rate. CPALL posted SSSG of nearly 4% for
its convenient store business and 2.1% for its cash-and-carry
operations. The improvement in EBIT margin was mainly from
gross profit expansion at its cash-and-carry unit – thanks to an
increase in the proportion of high-margin products in sales,
more efficient inventory management which resulted in a
lower shrinkage rate, and the performance of Indoguna
Group. As at end-2017, CPALL had 10,268 convenient stores
nationwide (vs 9,542 as at end-2016 and 10,152 as at end-
3Q16) while MAKRO operated 123 stores (vs 106 in 2016 and
120 as at end-3Q16). CPALL also divested 230.25m shares in
MAKRO at Bt44/share in an overnight private placement to
local and foreign investors at end-March at a 13.7% discount
to MAKRO’s last closing price.
BJC also saw strong top-line growth and margin expansion.
BJC’s modern retail supply chain also reported robust y-o-y
earnings growth for 4Q17 from solid SSSG of 3.8%, store
expansion, larger rental space, higher rental rate, increasing
income from brochure advertising as well as in-store media
concessions, and especially an expansion of net profit margin
by 222bps y-o-y. A jump in net profit margin was attributed to
its merchandising strategy (in fresh food, home-line products)
and inventory management (including supply chain efficiency
improvement and aggregating deliveries from smaller
suppliers). BJC had a total of 125 hypermarkets, 15 BIG C
Extra, 60 BIG C Market, and 642 Mini BIG C across Thailand as
at end-2017.
2Q17
3Q17
Source: Company, DBSVTH
Positive domestic consumption environment
Improving economy to drive domestic consumption in 2018.
For 2018, Thailand’s economy is forecast to grow 4.6% and
4% by the NESDB and DBS Bank respectively. While 2017
GDP was boosted mainly by export and tourism, we expect to
see a more broad-based recovery in 2018. Positive momentum
should be supported by a pick-up in public investment as
projects awarded last year begin construction, as well as on
improving business sentiment and rising industrial capacity
utilisation. Exports should remain strong amid a continued
global economic recovery while the Thai tourism industry
should also remain resilient. However, the economic recovery
has only been seen in Bangkok, tourist destinations, and
major cities so far.
Election to support consumption. Despite the emergence of
positive factors such as export growth and rising economic
indicators, consumer confidence dropped for the first time in
seven months in February as people were worried about the
political situation, the baht's strength, and the minimum wage
hike. Due to legislative processes, the general election is likely
to be delayed from November 2018 to February 2019.
However, we still believe the election will be held and this
should help boost domestic consumption and bring back
investors’ confidence. In terms of THB against USD, it has
gained 4.7% QTD, making it Asia's second-best performing
currency after Japan's yen this year. However, our Thailand
economist forecasts export growth to remain decent at 5.7%
(y-o-y) in 2018 as economies, especially ASEAN, remain
buoyed by strong trade trends.

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 Industry Focus
ASEAN Grocery Retail

Expect minimum wage increase to boost consumers’
purchasing power
Higher minimum wage from April 2018. The minimum daily
wage will be increased nationwide from April 2018. The
increase in the daily rate will be in the range of Bt5-22,
implying a hike of 2-7% above current levels and the rate will
vary by province, depending on the cost of living, per-capita
income, inflation rate, living standard, production cost,
product and service prices, as well as the economic growth of
each province. Manufacturing and service industries will be
the most affected but listed companies should be less hit as
most of the workers are already paid well above the minimum
wage.
Thailand has hiked minimum daily wage rate by 2-7%
M in w age
Prov inces
(Bt )
308 Three provinces including Narathiwat, Pattani, and Yala
310 22 provinces
315 20 provinces
318 7 provinces
320 14 provinces including Chiangmai
325 7 provinces including Bangkok
330 Three provinces including Chonburi, Phuket, and Rayong
Avg 315.97
Source: NESDB, DBSVTH
Wage hike to boost consumption, but retail prices likely to be
in line with wage increase. With as much as 12% of workers
still earning less than the minimum wage rate, we expect the
minimum wage hike to boost overall purchasing power and
consumption, especially on basic necessities such as groceries.
As the Ministry of Commerce would be keeping an eye on
many grocery retailers to ensure the prices of consumer items
are kept in line with the increase in wages, we believe the
price increases would not be excessive.
Asia: Comparative daily minimum wage
Count ry GDP grow t h Inf lat ion % Daily min w age (USD)
Indonesia 6.7% 3.9% 3.29
V ietnam 5.9% 3.7% 4.89
Malaysia 5.0% 4.0% 7.54
Thailand 3.8% 0.6% 9.20
Philippines 6.1% 3.2% 9.52
Source: Thai National Shippers’ Council, DBSVTH
Labour costs likely to increase, but minimal impact on both
BJC and CP All. The Ministry of Commerce also does not
expect a major increase in the cost of production of goods or
exports (+0.1%) which we believe is likely due to a lower
proportion of labour which is due for a minimum wage
increase. For grocery retailers in Thailand, we see only slight
impact on labour costs as less than 15% of workers are
affected at CP All, while wage increases are expected to be
offset by better scale and higher margins from the non-
grocery retail business at BJC. Besides, according to the Thai
Retailers Association (TRA), costs for retailers are expected to
rise by only 1.7-2.3%.
Competition in the hypermarket segment to be more
aggressive this year. Tesco Lotus Thailand (Tesco TH) has its
first Thai new CEO this year and the new CEO has been very
aggressive in terms of pricing strategy. Tesco TH launched its
annual ‘Price Rollback’ campaign after Chinese New Year.
This campaign is its biggest discount programme ever,
offering the deepest and widest discount in the company's 15
years in Thailand and covering more than 1,000 items with
discounts of up to 40%. The discounts this year will also cover
fresh food, contrasting with its focus on dry and non-food
products in previous years. Additionally, the campaign will be
applied to all of Tesco TH’s formats from hypermarkets to
express stores and its online platform.

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Overweight Thai grocers on growth prospects
CP ALL (CPALL TH, BUY, TP: Bt95). We remain positive on
CPALL, given its defensive nature, business resilience, visible
expansion plan, market leadership, healthy earnings growth,
and high ROE of close to 30x. CPALL will benefit from the
recovery in domestic consumption and rising purchasing
power as it sells mainly consumer products. This would further
support SSSG in both its CVS and cash-and-carry businesses.
Meanwhile, CPALL still targets to open at least 700 7-Eleven
stores per annum. Despite its plans to add new stores, the
spotlight remains on lifting margins by increasing the mix of
high-margin products (health and beauty) and controlling
expenses. FY18F profit is projected to rise 18.1% y-o-y to
Bt23bn. Our TP, based on DCF (WACC 9.4%, terminal growth
rate 3%), is Bt95.
Industry Focus
ASEAN Grocery Retail
Berli Jucker (BJC TH, BUY, TP: Bt70). BJC’s FY18F growth
profile looks promising as the operations of every business
segment are on an upward trend, alongside lower taxes and
the potential of expanding its retail operations in ASEAN. Its
packaging business will get a tailwind from increasing glass
production capacity, which would enhance its operating
margin as the company will rely less on importing some bottle
parts. Meanwhile, improving domestic consumption should
lead to higher demand for consumer products and
accelerating government budget disbursement on public
health should support its healthcare business. Positive SSSG
(supported by its merchandising strategy in fresh food and
home-line products, improving domestic consumption, and
plan to expand its customer base) and a continuous rollout of
outlets will drive its modern retail operations going forward.
Our TP, based on DCF (WACC 7.4%, terminal growth rate
3%), values the stock at Bt70.
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ASEAN Grocery Retail

Indonesia – Weak operating environment

Weak consumption environment led to declining SSSG
Weak purchasing power weighed down grocery sales last
year. The year 2017 was challenging for grocery retailers as
consumers cut spending on both basic and discretionary
needs. Sales growth of 58 FMCG categories tracked by
Nielsen decelerated to 2.5% y-o-y in 2018, from 7.8% y-o-y
in 2017 with volume declining by 2.3% y-o-y in 2018 vs. an
increase of 2% y-o-y in 2017.
Alfamart saw slower sales growth, lower margins. Alfamart
(AMRT) reported a 1.7% decline in same-store sales in FY17
as weak economy prompted consumers to cut spending. It
added 1,100 stores in FY17 (+8% y-o-y), lower than the initial
target of 1,400 stores. AMRT’s revenue grew 10% y-o-y in
FY17, decelerating from the 18% growth booked in FY16.
Key weaknesses were seen in stores located around the
greater Jakarta area. EBIT declined by 18% y-o-y on higher
opex, particularly salary (+15% y-o-y) and rent (+24% y-o-y).
In FY17, AMRT’s EBIT margin stood at 1.7% vs. 2.3% in
FY16. Net profit dropped by 50% y-o-y as debt level rose. As
at end-December 2017, AMRT had Rp7.8tr interest-bearing
debt, translating into gross and net gearing of 1.5x and 1.3x
respectively (vs. 1.1x and 1.3x respectively as at end-
December 2016). Cash conversion cycle weakened to 13 days
in 2017 from 10 days in 2016, mostly due to lower inventory
turnover. Looking ahead, AMRT looks to improve its cash
conversion cycle by requiring principals to pay a cash deposit
for joint promotion programme.
Matahari’s inventory clearance led to higher losses in 4Q17.
PT Hero’s Supermarkets and Hypermarkets segment a drag.
Revenue declined by 7% y-o-y in FY17, dragged by negative
SSSG and weak performance in Supermarkets and
Hypermarkets as Food business dragged Health & Beauty
(Guardian) and IKEA’s positive performance which grew
10% y-o-y. One-off costs of Rp366bn, related mostly to
impairment of assets and stock clearance or write-offs in the
Food business, led to net losses of Rp191bn versus Rp121bn
profit in FY16. Excluding such costs, core profit before tax
would have increased 71% to Rp281bn.
Minimarkets growing faster than hypermarkets and
supermarkets
Consumers favour minimarkets as they offer convenience and
competitive pricing. Minimarket operators continued to
expand aggressively last year with the two largest players
adding c. 2,000 new stores, as consumers continue to shift
away from traditional channels and hypermarkets to
minimarkets, which offer convenience and competitive
pricing. From 2014-2017, minimarket (or convenience store)’s
share of Indonesia’s Modern Grocery Retail market grew at
the expense of supermarkets and hypermarkets by 3ppts from
47% to over 50%.
Indonesia’s modern grocery retail market share
100%
90%
80%
47.2% 50.2%
70%
60%

Revenue was in line with expectations at Rp2.95tr in 4Q17 (- 50%

40%
9% y-o-y, +2% q-o-q). and Rp12.56tr (-7% y-o-y) for FY17. 33.2% 31.4%
30%
However, it stepped up its inventory clearance programme in
20%
4Q17, which resulted in EBIT losses of Rp1.11tr and net loss 10% 19.6% 18.3%
of Rp858bn in 4Q17. Net loss for of FY17 was Rp1.24tr, far 0%
higher than our expectation of Rp277bn. Gross margin 2014 2017

turned negative in 4Q17 (at -11.9% vs. 3Q17 gross margin Hypermarket Supermarket Convenience store
of 12.3% due to heavy discounting). On the other hand,
Source: Euromonitor, DBS Bank
working capital cycle improved significantly to 11 days in
2017 from 20 days in 2016 due to faster inventory turnover.
The company closed five Hypermart outlets in FY17 but
added three new stores during the year. It also closed a
number of non-performing Foodmart Express outlets in
Kalimantan. Despite stronger commodity prices and exports
last year, the company has yet to see any significant
improvement in ex-Java outlets.

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Modern grocery retail players still recalibrating themselves
Hypermarket players reformat stores. To improve its
profitability, MPPA looks to scale down its store size from
4,000 sqm initially to 3,000 sqm gradually, starting from 20
outlets (out of 113 outlets) in 1H18. The company also plans
to rationalise its SKUs by cutting slow-moving, discretionary
items and instead focusing only on basic needs.
Carrefour transforming into a one-stop shopping concept.
Meanwhile, the largest hypermarket operator Carrefour is in
the process of revamping its outlets into Transmart Carrefour,
which offers a one-stop shopping concept, similar to
department stores. Transmart Carrefour outlets offer not only
groceries but also fashion and beauty products, electronics,
restaurants and entertainment.
Alfamart to reduce pace of store expansion in 2018. After
seeing a weak top-line growth in FY17, Alfamart is slowing
down expansion with a new store target of 800 stores (vs.
FY17 initial target of 1,400 new stores). Given the high
gearing profile and stretched inventory days, the company is
opting to improve its business model rather than expanding
aggressively in 2018. Its competitor Indomaret is also slowing
down expansion with new store opening target of 1,000 this
year, lower than its 2017 target of 1,500 new stores. We
think this could lessen the price competition between
minimarket and supermarket/hypermarket operators in
Indonesia.
Industry Focus
ASEAN Grocery Retail
PT Hero in strategic review of its Food Business. PT Hero is
conducting a strategic review of its Food Business for loss-
making stores, merchandise including stock clearance of
poorer-quality products and product range, pricing strategy,
and promotions. Hero Supermarkets are also being upgraded
through its store revitalisation programme. PT Hero has
partnered with GO-JEK since 4Q17 to put its groceries up for
sale on GO-MART with delivery fulfilled by GO-JEK. They join
all major supermarkets on the platform including Alfamidi,
Superindo and Ramayana. Guardian and IKEA have also
posted positive performances. Guardian is recovering from its
2016 store rationalisation programme especially in the Beauty
segment, while IKEA is generating strong sales driven by
higher footfall. IKEA online started nationwide coverage from
4Q17 as its third IKEA e-commerce Distribution Point in Giant
Ekstra Harapan Indah opened. A second IKEA store has been
planned at Jakarta Garden City.
Remain neutral on MPPA
Maintain HOLD for MPPA (MPPA IJ, HOLD, TP: Rp380). MPPA
went through 2017 with a massive cost-cutting exercise by
reducing the number of employees at the store level (by up to
50%) and cutting headquarters costs. It also ended with
healthier inventory days of 68 days in 2017 (vs. 2014-2016
range of 75-85 days) after flushing out slower-moving
merchandise. We believe cost-saving initiatives such as
downsizing stores will improve profitability in 2018. We
maintain HOLD on MPPA with a lower target price of Rp380
(from Rp450 previously) after factoring in higher debt and
interest expense assumption on its fund-raising exercise. The
stock could also see new growth drivers over the longer term
by raising Rp800m to embark on a new transformation
strategy based on the principles of price leadership, omni-
channel retailing, efficiency, and an ultimate focus on serving
the evolving lifestyle and aspirations of its customers.
Page 13
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Malaysia – Cost challenges with high valuation
Challenging environment for convenience store operators
Malaysia’s listed convenience store operators reported
unexciting quarterly results. The recent quarterly results
reported by both the two listed convenience store operators,
7-Eleven Malaysia Holdings Bhd (SEM) and Mynews Holdings
Bhd (Mynews) were unexciting and continue to imply a
challenging operating environment going forward.
7-Eleven's earnings boosted by higher-than-expected
operating income. SEM’s 4QFY17 earnings grew by 66.5% to
RM15.9m on the back of a 4.3% y-o-y improvement in
revenue to RM546.2m. Although the headline earnings for
the quarter seem impressive, we understand that it was
mainly boosted by additional compensation income from
vendors amounting to RM9.3m.
The additional compensation came from 1) a retail system
provider on project delays in implementing the group’s retail
system, and 2) its logistic suppliers, arising from late delivery
of SEM’s products to its outlets back in 1QFY17. Should we
strip off these non-recurring compensation income, the
group’s earnings would have only come within expectations.
The 4QFY17 revenue growth of 4.3% was mainly driven by 1)
new store openings, and 2) better product mix. In fact, the
group’s SSSG contracted by 1.9% during the quarter, on the
continued weak retail environment. SEM opened 126 new
and closed 23 existing stores in FY17, missing its own
guidance of 150 new stores per year. It also missed its 130-
store refurbishment target, after renovating only 90 stores in
2017.
Will focus on improving cost efficiency and product offerings.
Moving ahead, the group will focus on 1) improving
operational efficiency, 2) optimising its cost structure, and 3)
commercial innovation. Management is improving its store
maintenance model and its supply chain to 1) reduce
maintenance backlogs, 2) ensure better inventory
management, and 3) enhance its logistics efficiency. We
gather that SEM will be shifting to a new centralised
distribution centre (CDC) in Shah Alam by mid-2018.
Management is optimistic that the new inventory
management technology and warehouse design will enable
the group to reduce its costs going forward.
Industry Focus
ASEAN Grocery Retail
Although management has targeted 200 gross stores
openings for FY18, we believe that the target could be a tad
stretched given that 1) a key part of management's strategy is
on improving operational efficiency of its store and optimising
cost structure, and 2) we understand that management is
turning more selective on its new store locations.
Mynews saw disappointing 1Q results. Mynews’s 1QFY18
results (end-January) was flat y-o-y at RM6.3m (20% q-o-q),
accounting for 21% of FY18 street estimates. We deem the
results to be below expectation as 1QFY18 is typically a strong
quarter for Mynews. Although revenue grew 18.2% y-o-y
due to new store expansion and better product mix, its
bottom line was dragged by higher operating expenses,
which surged by 32.4% y-o-y to RM25.3m in tandem with
the higher number of stores – from 307 in 1QFY17 to 366 in
1QFY18.
Continuing its rapid growth. Going forward, the group is
aiming to 1) continue its network expansion by adding 90
stores in FY18, 2) increase warehouse capacity, and 3)
broaden its food and beverage (F&B) product offerings.
The group had acquired a semi-detached factory in Tebrau,
Johor, which will be its second distribution centre for the
southern region. It has the capacity to serve up to 80 outlets.
At present, Mynews has 35 outlets in Johor and Melaka. This
new distribution centre is expected to be fully commissioned
by the end of this month.
Mynews is also focusing on expanding its F&B segment as this
carries a better GP margin (c.40%). By undertaking such
product expansion, the group is planning to gradually reduce
its dependence and shift the space allocated per store from
print media to F&B products.
Besides that, Mynews is constructing a food processing facility
in Rawang (adjacent to its Central Distribution Centre) which
is expected to be completed by the end of this year. This
facility is mainly to expand its fresh food product offerings
(sub-segment of F&B). To optimise this new venture, the
group has entered into joint ventures with two established
Japanese F&B companies, Gourmet Kineya and MRA Bakery,
which are specialised in the ready-to-eat (RTE) food segment.
These JVs are expected to offer better food quality to
customers and could increase store footfall.
Page 14
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 Industry Focus
ASEAN Grocery Retail

Retail industry growth is improving but unexciting
Strong economic data, but not retail sales. Although 2017
GDP growth of 5.9% has surprised on the upside, boosted by
manufacturing and services sectors, we observe that the
strong headline GDP data does not translate into robust retail
growth. According to Retail Group Malaysia Sdn Bhd (RGM),
the retail industry grew by only 2% in 2017, which came
below expectations. RGM has subsequently cut its 2018
industry growth estimates to 4.7%, from the initial forecast of
6%.
Retail industry undergoing consolidation. In fact, during an
interview with a local media, Mr Tan Hai Hsin, the managing
CVS to post a 5.1% CAGR. Nonetheless, Euromonitor
estimates that convenience stores (CVS) in Malaysia will enjoy
a strong CAGR of 5.1% between 2017 and 2019, outpacing
Malaysia’s entire grocery retail market. Drivers include the
shift of consumer preference to stores that offer more
convenience or time savings when shopping for groceries.
CVS offer 1) open and easy accessibility, 2) limited queuing
time, 3) dynamically displayed and easy-to-find products, and
4) items that are rarely out of stock; and are therefore gaining
popularity among the urban and time-starved consumers.
Market size of selected grocery retailers (2015-2019)
RM'm

15,680
15,571
15,447
15,309
15,189
18000
director of RGM, highlighted that the retail industry is going

13,911
13,821

13,681

13,449

13,207
16000
through a consolidation phase and continues to witness the 14000
closure of established overseas and local retailers in Malaysia.

9,756
12000

9,363
8,994
It was reported that Parkson Holdings Bhd has closed four

8,648
8,324
10000
stores since September 2017. Dairy Farm subsidiary GCH 8000
Retail (M) Sdn Bhd, which operates supermarkets and

4,040
3,841
3,623
6000

3,364
3,127

hypermarkets such as Giant and Cold Storage in Malaysia, has 4000

reduced its number of stores from 146 in April 2016 to 134 in 2000
February 2018.
0
2015 2016 2017 2018 2019
Convenience stores (CVS) outpacing growth of modern grocery Convenience Stores Hypermarkets

retail market Supermarkets Independent Small Grocers

Source: Euromonitor, DBS Bank

1.1% CAGR growth of grocery retail market for 2017-19.
According to Euromonitor, the grocery retail industry in
Malaysia grew by only 1% y-o-y in 2017 and it expects a
CAGR of 1.1% between 2017 and 2019, which is a rather
uninspiring growth rate.
Market value of Malaysia’s grocery retail (2015-2019)
Grocery Retailers
RM'm
65000
64000
Competition overshadows. The number of CVS in Malaysia
has expanded rapidly over the past four years at a CAGR of
12%. Despite the bright prospects of the industry, we wish to
highlight that its operating landscape is becoming increasingly
competitive. While the CVS format’s top-line growth is
expected to be positive going forward, we see earnings
growth being dampened by 1) uninspiring SSSG due to
increased competitive landscape, and 2) higher operating
costs driven by higher staff costs and rental expenses.

63000
Convenience Stores: Number of stores (2015-2019)
Number of stores 2014 2015 2016 2017
62000
7-Eleven Malaysia 1,743 1,910 2,096 2,160
61000 99 Speedmart 570 708 839 1,000
60000
myNEWS.com 195 230 247 315
KK Super Mart 165 195 214 262
59000 Family Mart - - 2 18
2015 2016 2017 2018 2019
My Mart 8 10 12 12
Source: Euromonitor, DBS Bank Others 60 62 71 74
2,741 3,115 3,481 3,841
Source: Euromonitor, DBS Bank

Page 15
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 Industry Focus
ASEAN Grocery Retail

Valuation is not conveniently priced

Malaysia grocers trade at above average valuations. Both SEM

and Mynews are currently trading at rich valuations of 33x
and 37x FY18 PE respectively. Although prospects for the
sector remain bright, we continue to believe that the
competitive environment remains challenging. Furthermore,
the recent quarterly results released by Mynews illustrate that
cost pressure could be a key risk to watch going forward.

Page 16
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Philippines – Inflation and tax reform to dampen outlook
RRHI earnings miss, PGOLD earnings are largely in line
PGOLD FY17 headline earnings largely within estimates.
PGOLD earnings for FY17 were P5.8bn (+9.0% y-o-y), largely
within ours and consensus expectations. SSSG was 6.2% and
6.5% for Puregold and S&R respectively on the back of
P12.45bn (+10.6% y-o-y) revenue, driven by the Puregold
segment. Gross margin remained flat at 16.6%, while opex
grew faster at 12.5% y-o-y, leading to consolidated EBIT/net
profit margin contraction of c.20/30bps y-o-y. The higher
OPEX can be attributed to increase in minimum wage, higher
manpower, and aggressive expansion.
RRHI's FY17 earnings behind estimates. RRHI reported 4Q17
net profit of P1.49bn (-2.6% y-o-y), bringing its FY17 net
income to P4.98bn (+3.1% y-o-y) or 94% of our full-year
forecast – below our and consensus estimates. 4Q17 revenues
grew by 8.2% y-o-y to P34.1bn, mainly driven by healthy y-o-
y performances and resilient SSSG of the Supermarket, DIY
Store, and Specialty Store businesses. Department Store
segment remained most challenged amid high-base effects,
prolonged decrease in GFA (due to massive renovation of
Robinsons Galleria), and a generally strong competitive
landscape. Blended SSSG normalised to 2.7% for the full
year, which was expected, coming from a high base from an
election year (2016 SSSG: 6.7%). FY17 consolidated margins
expanded with higher gross profit margin (+40bps to 22.3%)
as well as EBIT margin (+30bps to 5.5%).
Rustan Supercenters Inc. sold to RRHI
RRHI acquires Rustan Supercenters, Inc. from Dairy Farm. RRHI
and Dairy Farm International (DFI) entered an agreement that
involved DFI selling its 100%-ownership stake in Rustan
Supercenters, Inc. (RSCI, Rustan) in exchange for 12.15% new
RRHI shares worth US$346m (P18bn). In addition, DFI will
subscribe to an additional 6.1% stake in RRHI shares worth
US$174m. Both share sales are valued at P94 per RRHI share.
Post-transaction, DFI will effectively own an 18.25% stake in
RRHI – a 12.15% stake will arise from the sale of RSCI, while
the remaining 6.1% stake will come from Gokongwei’s sale
of shares (which will be funded by DFI through internal cash
and bank borrowings). With the resulting exchange in equity,
DFI will have rights to two board seats in RRHI, while
Gokongwei’s stake will be reduced from 65% to 51% post-
share sale and equity dilution. RRHI will take over 100% of
RSCI’s operations by late 2018.
Industry Focus
ASEAN Grocery Retail
Negative for RRHI, positive for DFI. We view the deal to be
negative for existing shareholders in the near-to-medium term
due to the earnings dilution, lower margins from having to
absorb a loss-making business, and lower ROE. Nevertheless,
we see the deal to be constructive in the long term as it
improves RRHI’s competitiveness, though not a game
changer. We believe management can turn around Rustan
but it will take some time before we see a meaningful positive
impact on RRHI’s earnings.
Tax Reform for Acceleration and Inclusion (TRAIN) Package 1
kicked in in mid-January 2018
1Q18 to see higher prices, stronger SSSG and lower volume
sales of sugar-sweetened beverages. Based on our channel
checks, we have observed sharper price increases in the list of
grocery items (including branded packaged food and
beverage products) that we follow in the Philippines. We are
of the view that packaged food and beverage manufacturers
are using the TRAIN Package 1 as an excuse to raise prices,
some at a rate higher than the implied tax rate. We also
expect SSSG to be stronger as shoppers stock up prior to the
price increase. For the likes for RRHI, which benefits from the
TRAIN Package 1, supermarket SSSG will likely come in above
5.0%. As for PGOLD, we see 1Q18 SSSG at a slower pace
2.0-3.0% given its target market’s high sensitivity to price
inflation. Besides, given the imposition of excise tax on sugar-
sweetened beverages, we believe groceries, convenience
stores, etc., will likely report lower volume sales of sugared
beverage items in 1Q18. Store managers whom we talked to
have acknowledged a slowdown in volumes sales on
carbonated drinks and other sugar-sweetened beverages.
1Q18 margins to expand on price-protection measures.
Despite the above, we believe margins will expand in 1Q18
from a windfall coming from price-protection measures.
Retailers would have pre-loaded on inventories at lower prices
prior to the expected price increase which will lead to better
margins in 1Q18, likely to be a good quarter for grocery
retailers. However, we think margins, earnings growth and
demand should moderate in the upcoming quarters as the
pre-loading on cheaper inventories ease and consumers trade
down on cheaper and lower-margin products.
Page 17
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 Industry Focus
ASEAN Grocery Retail

Return of inflation dampens consumer confidence cost-push impact of the TRAIN Law). Inflation should however
moderate into FY19F once temporary shocks recede going
Consumer confidence not strong. 2017 saw a weaker-than- forward.
expected household consumption reading in 3Q17, mainly on
spending moderation amid rising inflation. More accurately, Old but familiar: Return of inflation
household spend capped 2017 with a 5.8% y-o-y growth, (%)
6.0
below its five-year average of 6.0%. The Bangko Sentral ng
Pilipinas (BSP)’s quarterly Consumer Expectations Survey (CES) 5.0
reflects the same, and reports waning consumer confidence 4.0
B SP Target: UB: 4%

and less upbeat outlook going forward as households start to

3.0
worry about higher prices of goods and consequently
B SP Target: LB: 2%
household spend, among other concerns, such as peace and 2.0

order, calamities, poor health and high medical expenses. 1.0

0.0
Household consumption falling behind 5-year average
-1.0
(%)

2Q11
3Q11
4Q11

2Q12
3Q12

1Q13
2Q13
3Q13

1Q14
2Q14
3Q14
4Q14
1Q15
2Q15

4Q15
1Q16
2Q16

4Q16
1Q17

3Q17
4Q17
1Q11

1Q12

4Q12

4Q13

3Q15

3Q16

2Q17
8.0

7.0 Source: Bangko Sentral ng Pilipinas (BSP), Philippine Statistics

Authority
Five y ear average: 6.0%
6.0

Maintain HOLD for both RRHI and PGOLD

5.0

4.0
Puregold Price Club (PGOLD PH, UNDER REVIEW). FY17
headline results were within estimates. Challenges
3.0 nonetheless remain for the Puregold, including rising inflation,
1Q11
2Q11

2Q12
3Q12
4Q12
1Q13
2Q13

2Q14
3Q14
4Q14
1Q15
2Q15
3Q15

3Q16
4Q16
1Q17
2Q17
3Q17
3Q11
4Q11
1Q12

3Q13
4Q13
1Q14

4Q15
1Q16
2Q16

4Q17

higher wages, competition, and start-up losses from new

Household Consumption GDP stores. S&R segment faces competition (from Landers), peso
Source: Philippine Statistics Authority weakness from high exposure to imported products (70%),
and rising OPEX from start-up losses from new stores. These
Weakening consumer sentiment going forward will continue to put pressure on its margins and earnings.
50.0 Rating, TP and earnings are under review.
CES: Outlook for Current Quarter
CES: Outlook for Next Three Months
40.0
CES: Outlook for Next Twelve Months
Robinsons Retail Holdings Inc. (RRHI PM, HOLD, TP: P87.00).
30.0
We cut earnings by 7%/10% for FY18F/19F as we consolidate
20.0 the acquisition of the loss-making Rustan Supercenter Inc.
10.0 from Dairy Farm and the earnings dilution in the same deal
0.0
that will issue new shares to Dairy Farm. We view the deal to
be negative in the near-to-medium term but constructive in
-10.0
the long term. We expect positive impact on RRHI’s earnings
-20.0 to be felt the earliest in FY20F. This acquisition is significant
-30.0 relative to the previous acquisition as it entails exposure to the
1Q11
2Q11
3Q11

1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16

4Q17
1Q18
4Q11
1Q12
2Q12
3Q12
4Q12

4Q16
1Q17
2Q17
3Q17

higher-end market segment especially in metro Manila,

Source: Bangko Sentral ng Pilipinas although it is not a game changer. In addition, we adjust our
estimates to reflect earnings pressure stemming from the
Inflation to accelerate. Average annual inflation for 2017 was increasing competition in the retail mall space. Our TP of P87
at 3.2%, 1.4ppts higher than 2016 and slightly above the is based on SOTP valuation methodology and implies 25x/22x
midpoint of BSP’s 2-4% inflation target. Our DBS economist’s FY18F/19F PE – in line with regional peer average.
revised inflation forecast (2006=100) expects increase in
prices to tread higher at 4.5% in FY18F, before normalising to
3.6% in FY19F. We share BSP’s view that near-term risks to
inflation lean more on the upside (especially amid transitory

Page 18
Page 18
 Industry Focus
ASEAN Grocery Retail

COMPANY GUIDES

Page 19
Page 19
 Thailand Company Guide
CP ALL
Version 9 | Bloomberg: CPALL TB | Reuters: CPALL.BK Refer to important disclosures at the end of this report

DBS Group Research . Equity 26 Jan 2018

BUY Beneficiary of rising consumer confidence

Last Traded Price ( 25 Jan 2018): Bt80.00 (SET : 1,819.29)
Price Target 12-mth: Bt95.00 (19% upside) (Prev Bt84.00) Expect another record high in 4Q17F. While 4Q17F revenue
would grow decently from positive SSSG and store expansion,
Analyst we project earnings growth to outpace revenue growth,
Namida Artispong +66 2857 7833 namidaa@th.dbs.com mainly from gross profit margin expansion at both CVS and
MAKRO businesses. An increase in gross profit margin at CVS
What’s New should stem from higher product mix of higher-margin
products like personal care and ready-to-eat products while
• Expect 4Q17F earnings to hit a record high, growing by
lower sales of low-margin products such as alcohol and
19% y-o-y
cigarettes were the key reasons behind MAKRO’s higher
• SSSG has remained firmly in positive territory margin. Overall, we estimate CPALL’s 4Q17E earnings to rise
• Profitability to remain strong in FY18F with projected 18.7% y-o-y and 2.7% q-o-q to Bt5.1bn.
earnings growth of 18% Profitability to stay strong in FY18F. CPALL will benefit from
the recovery of domestic consumption and rising purchasing
power as it sells mainly consumer products. This would further
Price Relative support SSSG in both CVS and cash-and-carry businesses.
Bt
Meanwhile, CPALL still targets to open at least 700 7-Eleven
Relative Index

83.8 212

73.8
192 stores p.a. Despite its plans to add new stores, the spotlight
172
63.8 152 remains on lifting margins by increasing the mix of high-
53.8
132

112
margin products (health and beauty) and controlling expenses.
FY18F profit is projected to rise 18.1% y-o-y to Bt23bn.
43.8
92

33.8 72
Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

CP ALL (LHS) Relative SET (RHS) Where we differ? We believe its current valuation is
undemanding given its defensive nature, business resilience,
Forecasts and Valuation
FY Dec (Bt m) 2016A 2017F 2018F 2019F visible expansion plan, market leadership, and high ROE.
Revenue 434,712 473,594 520,177 567,299
EBITDA 36,473 40,687 45,257 49,889 Potential catalyst. A pick-up in domestic consumer spending.
Pre-tax Profit 20,142 23,466 27,923 32,678
The spending is likely to improve onwards which will benefit all
Net Profit 16,677 19,486 23,006 26,610
Net Pft (Pre Ex.) 16,599 19,486 23,006 26,610 retailers including CPALL.
Net Pft Gth (Pre-ex) (%) 21.3 17.4 18.1 15.7
EPS (Bt) 1.86 2.17 2.56 2.96 Valuation:
EPS Pre Ex. (Bt) 1.85 2.17 2.56 2.96 We now use a terminal growth rate of 3% vs 2% previously in
EPS Gth Pre Ex (%) 21 17 18 16
Diluted EPS (Bt) 1.86 2.17 2.56 2.96 view of the brighter domestic spending mood. Thus, our DCF-
Net DPS (Bt) 0.90 1.08 1.28 1.48 based TP rises to Bt95.0, based on DCF valuation (WACC
BV Per Share (Bt) 6.14 8.30 9.58 11.1 9.4%, terminal growth rate 3%).
PE (X) 43.1 36.9 31.2 27.0
PE Pre Ex. (X) 43.3 36.9 31.2 27.0
P/Cash Flow (X) 18.9 20.8 18.2 16.3 Key Risks to Our View:
EV/EBITDA (X) 24.1 21.2 18.9 16.9 Key risks are (i) delays in store expansion, (ii) weaker-than-
Net Div Yield (%) 1.1 1.4 1.6 1.9 expected consumer confidence, and iii) intense competition.
P/Book Value (X) 13.0 9.6 8.3 7.2
Net Debt/Equity (X) 2.6 1.8 1.4 1.1 At A Glance
ROAE (%) 36.0 30.0 28.6 28.7
Issued Capital (m shrs) 8,983
Earnings Rev (%): 0 0 N/A Mkt. Cap (Btm/US$m) 718,648 / 22,839
Consensus EPS (Bt): 2.15 2.53 2.99
Major Shareholders (%)
Other Broker Recs: B: 27 S: 0 H: 1
C.P. Merchandising (%) 30.5
Source of all data on this page: Company, DBSVTH, Bloomberg Finance Charoen Pokphand Group (%) 10.2
L.P Thai NDVR (%) 4.8
Free Float (%) 58.3
3m Avg. Daily Val (US$m) 34.5
ICB Industry : Consumer Services / Food & Drug Retailers

Page 20
ed: CK / sa: PY, CS
Company Guide
CP ALL

WHAT’S NEW

Profitability to remain strong

Another record high in 4Q17F. SSSG for both convenient Profitability to stay strong in FY18F. CPALL will benefit from
store (CVS) and cash-and-carry businesses should remain the recovery of domestic consumption and rising purchasing
healthy with a positive figure in 4Q17F. We estimate CVS’ power as it sells mainly consumer products. This would
SSSG to be strong at +4% in 4Q17F (vs -0.4% in 4Q16 and further support SSSG in both CVS and cash-and-carry
+2.4% in 3Q17), thanks to the success of its stamp businesses. Meanwhile, CPALL still targets to open at least
promotion, the low base, and better domestic consumption. 700 7-Eleven stores p.a. Despite its plans to add new stores,
Meanwhile, MAKRO should report SSSG of +2.5% (vs +3.9% the spotlight remains on lifting margins by increasing the mix
in 4Q16 and +2.2% in 3Q17) from positive growth of fresh of high-margin products (health and beauty) and controlling
food and non-food items. In terms of store expansion, almost expenses. FY18F profit is projected to rise 18.1% y-o-y to
100 7-Eleven stores (on track to meet its target of adding Bt23bn.
700 stores p.a.) and three MAKRO stores were expected to
Maintain BUY with higher TP. We now use a terminal growth
be opened in the quarter.
rate of 3% vs 2% previously in view of the brighter domestic
While 4Q17F revenue would grow decently from positive spending mood. Thus, our DCF-based TP rises to Bt95.0. We
SSSG and store expansion, we project earnings growth to remain positive on CPALL given its defensive nature, business
outpace revenue growth, mainly from gross profit margin resilience, visible expansion plan, market leadership, and high
expansion at both CVS and MAKRO businesses. A rise in ROE of 29x.
gross profit margin at CVS should stem from a higher product
mix of higher-margin products like personal care and ready-
to-eat products while lower sales of low-margin products
such as alcohol and cigarettes were the key reasons behind
MAKRO’s higher margin. Overall, we estimate CPALL’s 4Q17E
profit to rise 18.7% y-o-y and 2.7% q-o-q to Bt5.1bn.
CPALL: Quarterly SSSG
8.0%
6.3%
6.0% 5.0%
4.4% 4.0%
3.9%
4.0% 5.0%
2.8% 2.6% 2.4%
2.4%
1.6%
2.0% 1.1% 1.2%
1.2% 2.5%
0.3% 2.2%
0.3% -0.4%
0.0% -1.0%
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17F
-2.0% -0.9% -0.7%
-1.4%

-4.0%
-3.7%

-6.0%

CPALL MAKRO

Source: Company, DBS Vickers

Page 21
 Company Guide
CP ALL

CPALL: 4Q17F earnings preview

FY Dec (Btm) 4Q16 3Q17 4Q17F

Revenue 111,103 118,242 125,890

COGS (86,800) (91,742) (97,759)
Gross Profit 24,303 26,500 28,131
SG&A (21,513) (23,624) (24,600)
Other opt. Inc. 4,336 4,924 4,951
Opt. Profit 7,126 7,799 8,482
Non-opt. Inc./Exp. 0 0 0
Int. Inc. 75 45 67
EBIT 7,202 7,844 8,550
Int. Exp. (2,131) (2,000) (2,243)
Extra Gain/(Loss) (17) 5 9
Pretax Profit 5,053 5,848 6,316
Tax (714) (853) (1,155)
MI (38) (25) (58)
Net Profit 4,301 4,970 5,103
Norm Profit 4,318 4,966 5,094
EPS 0.48 0.55 0.57

Gross Margin 21.9% 22.4% 22.3%

SGA % Sales (19.4%) (20.0%) (19.5%)
EBIT Margin 6.5% 6.6% 6.8%
Net Margin 3.9% 4.2% 4.1%
Eff. Tax Rate % (14.1%) (14.6%) (18.3%)

Source of all data: Company, DBSVTH

Page 22
Company Guide
CP ALL

Same-store-sales (%)
CRITICAL DATA POINTS TO WATCH
3.2
3.2 3

Critical Factors 2.8

2.4
Aggressive outlet expansion. As at end-3Q17, CPALL had a 2.3

total of 10,152 outlets nationwide, with 44% in Bangkok and 1.8

suburban areas, and the remaining in provincial regions. Despite 1.4 1.3

the slow domestic economy recovery, CPALL will continue to 0.9

0.9

aggressively expand its network. It targets to add at least 700 0.5

outlets p.a. and has a target to reach 13,000 stores by 2021. Of 0.0
the total additional 700 stores p.a., 90% of the new stores 2015A 2016A 2017F 2018F 2019F

would be standalone ones while another 10% will be located at Spending per ticket (Bt)
PTT gas stations. Furthermore, more than half of the new
69.6 66.9 68.2
outlets would be in provincial areas as there is ample potential 63 64.3 65.5

demand, thanks to a much higher population catchment per 55.6

store compared to Bangkok.
41.7

Resilient SSSG. Amid weak consumption sentiment, Thai 27.8

consumers are now more cautious and are spending on smaller-

13.9
ticket items and making more frequent shopping trips. This
trend is favourable for convenience store and mini-supermarket 0.0
2015A 2016A 2017F 2018F 2019F
formats. CPALL has been delivering relatively stronger SSSG,
outperforming other retailers that have mostly registered Customers/store/day
negative growth. As c.71% of its product mix is generated from 1274 1280 1286
1312.14 1261 1267
food (ready-to-eat meals, processed foods, bakery, snacks,
beverages, etc.) which is a staple, we expect CPALL’s operations 1049.71

and SSSG to be resilient. As domestic consumption is recovering

787.28
and purchasing power is rising, CPALL will benefit from this as it
sells mainly consumer products. 524.86

262.43
Solid gross margin. We expect economies of scale from outlet
expansion and larger contribution from higher-margin products 0.00

to support CPALL’s margins. With a larger network, CPALL will 2015A 2016A 2017F 2018F 2019F

be leveraging its high bargaining power on supply contracts. New Stores

The group will continue to add high-margin product lines like 705 710 700 700 700
ready-to-eat meals and from the health and beauty category,
which yield higher margins than other products. 573.7

430.3
Lower financing expenses. CPALL has refinanced its loans by
286.8
issuing debentures to replace high-cost bank loans. Additionally,
CPALL continues to issue subordinated perpetual debentures 143.4

which are classified as equity and would strengthen its balance

0.0
sheet.
2015A 2016A 2017F 2018F 2019F

Total stores at year end

11642
10942
10242
9542
9406.7 8832

7055.1

4703.4

2351.7

0.0
2015A 2016A 2017F 2018F 2019F

Source: Company, DBSVTH

Page 23
 Company Guide
CP ALL

Leverage & Asset Turnover (x)

Balance Sheet: 4.50
1.5

Expect gearing to decline. Following the MAKRO acquisition, 4.00 1.5

CPALL’s net gearing surged to 4.9x in FY13. Nonetheless, its net 3.50 1.4

gearing dropped to 2.3x as at end-3Q17, thanks to the nature 3.00 1.4

2.50
of its business – being cash-generative and providing decent 1.3
2.00
free cashflow. 1.50
1.3

1.2
1.00

Share Price Drivers: 0.50 1.2

A pick-up in domestic consumer spending. The spending is 0.00

2015A 2016A 2017F 2018F 2019F
1.1

likely to improve onwards which will benefit all retailers Gross Debt to Equity (LHS) Asset Turnover (RHS)

including CPALL.
Capital Expenditure
Btm
Key Risks: 19,500.0
19,000.0
Weak consumer confidence. CPALL’s business may suffer if 18,500.0

consumer confidence (as measured by the Consumer 18,000.0

17,500.0
Confidence Index) in Thailand weakens because of an 17,000.0

economic slowdown or domestic political unrest. In any case, 16,500.0

16,000.0
CPALL tends to adjust its product mix in response to changing 15,500.0

economic conditions. 15,000.0

14,500.0
2015A 2016A 2017F 2018F 2019F

Unfavourable weather conditions. Customer traffic at CPALL’s Capital Expenditure (-)

stores mostly involves walk-ins. Unfavourable weather ROE (%)

conditions could deter walk-in customers. CPALL normally 40.0%

registers softer sales during the rainy season. 35.0%

30.0%

Company Background 25.0%

CP ALL PCL was established in 1988 and is a flagship company 20.0%

of Charoen Pokphand Group’s marketing and distribution 15.0%

business. It is the leading operator of convenience store chains 10.0%

(7-Eleven) in Thailand with the highest market share. 5.0%

Additionally, it also operates other related businesses such as 0.0%

2015A 2016A 2017F 2018F 2019F
bill payment collection service, manufacturing and sales of
frozen foods and bakery, etc. Forward PE Band (x)
(x)
38.7

+2sd: 35.5x
33.7
+1sd: 31.9x

28.7
Avg: 28.2x

23.7
-1sd: 24.5x

-2sd: 20.9x
18.7
Jan-14 Jan-15 Jan-16 Jan-17

PB Band (x)
(x)
15.6

14.6 +2sd: 14.46x

13.6

12.6 +1sd: 12.71x

11.6

10.6
Avg: 10.95x

9.6
-1sd: 9.2x
8.6

7.6 -2sd: 7.44x

6.6
Jan-14 Jan-15 Jan-16 Jan-17

Source: Company, DBSVTH

Page 24
Company Guide
CP ALL

Key Assumptions
FY Dec 2015A 2016A 2017F 2018F 2019F
Same-store-sales (%) 0.90 2.40 1.30 3.20 3.00
Spending per ticket (Bt) 63.0 64.3 65.6 66.9 68.2
Customers/store/day 1,261 1,267 1,274 1,280 1,286
New Stores 705 710 700 700 700
Total stores at year end 8,832 9,542 10,242 10,942 11,642

Income Statement (Btm)

FY Dec 2015A 2016A 2017F 2018F 2019F
Revenue 391,817 434,712 473,594 520,177 567,299
Cost of Goods Sold (306,519) (339,688) (368,268) (403,212) (438,681)
Gross Profit 85,299 95,024 105,326 116,965 128,619
Other Opng (Exp)/Inc (60,030) (66,746) (73,813) (81,686) (89,583)
Operating Profit 25,269 28,278 31,512 35,279 39,036
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 0.0 0.0 0.0 0.0 0.0
Net Interest (Exp)/Inc (8,381) (8,213) (8,046) (7,356) (6,358)
Exceptional Gain/(Loss) (4.2) 77.1 0.0 0.0 0.0
Pre-tax Profit 16,884 20,142 23,466 27,923 32,678
Tax (3,066) (3,323) (3,825) (4,747) (5,882)
Minority Interest (135) (143) (155) (171) (186)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Profit 13,682 16,677 19,486 23,006 26,610
Net Profit before Except. 13,687 16,599 19,486 23,006 26,610
EBITDA 32,554 36,473 40,687 45,257 49,889
Growth
Revenue Gth (%) 9.5 10.9 8.9 9.8 9.1
EBITDA Gth (%) 21.5 12.0 11.6 11.2 10.2
Opg Profit Gth (%) 23.3 11.9 11.4 12.0 10.6
Net Profit Gth (Pre-ex) (%) 39.3 21.3 17.4 18.1 15.7
Margins & Ratio
Gross Margins (%) 21.8 21.9 22.2 22.5 22.7
Opg Profit Margin (%) 6.4 6.5 6.7 6.8 6.9
Net Profit Margin (%) 3.5 3.8 4.1 4.4 4.7
ROAE (%) 40.2 36.0 30.0 28.6 28.7
ROA (%) 4.2 4.9 5.4 6.2 7.0
ROCE (%) 8.2 9.1 9.6 10.4 11.4
Div Payout Ratio (%) 52.5 48.5 50.0 50.0 50.0
Net Interest Cover (x) 3.0 3.4 3.9 4.8 6.1
Source: Company, DBSVTH

Page 25
 Company Guide
CP ALL

Quarterly / Interim Income Statement (Btm)

FY Dec 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017

Revenue 108,642 111,103 113,329 116,134 118,242

Cost of Goods Sold (84,600) (86,800) (88,434) (90,333) (91,742)
Gross Profit 24,042 24,303 24,894 25,801 26,500
Other Oper. (Exp)/Inc (16,985) (17,177) (17,184) (18,280) (18,701)
Operating Profit 7,057 7,126 7,710 7,521 7,799
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 0.0 0.0 0.0 0.0 0.0
Net Interest (Exp)/Inc (2,100) (2,056) (1,956) (1,960) (1,955)
Exceptional Gain/(Loss) 28.1 (17.3) 5.04 (18.4) 4.55
Pre-tax Profit 4,985 5,053 5,759 5,542 5,848
Tax (832) (714) (951) (866) (853)
Minority Interest (38.0) (37.6) (43.3) (29.0) (25.0)
Net Profit 4,115 4,301 4,765 4,647 4,970
Net profit bef Except. 4,087 4,318 4,760 4,666 4,966
EBITDA 8,997 8,525 9,997 9,885 10,086

Growth
Revenue Gth (%) (1.2) 2.3 2.0 2.5 1.8
EBITDA Gth (%) (1.4) (5.3) 17.3 (1.1) 2.0
Opg Profit Gth (%) (0.4) 1.0 8.2 (2.5) 3.7
Net Profit Gth (Pre-ex) (%) (2.4) 5.7 10.2 (2.0) 6.4
Margins
Gross Margins (%) 22.1 21.9 22.0 22.2 22.4
Opg Profit Margins (%) 6.5 6.4 6.8 6.5 6.6
Net Profit Margins (%) 3.8 3.9 4.2 4.0 4.2

Balance Sheet (Btm)

FY Dec 2015A 2016A 2017F 2018F 2019F

Net Fixed Assets 89,447 99,127 106,735 113,472 119,338

Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0
Other LT Assets 182,663 183,242 183,156 183,074 182,998
Cash & ST Invts 22,921 34,819 36,920 40,443 32,430
Inventory 25,072 26,705 30,784 33,812 36,874
Debtors 854 1,026 1,118 1,228 1,339
Other Current Assets 8,126 7,349 8,084 8,893 9,782
Total Assets 329,083 352,268 366,796 380,921 382,761

ST Debt 23,803 31,554 25,449 27,799 23,454

Creditor 62,624 66,959 72,593 79,481 86,472
Other Current Liab 14,705 15,305 16,783 18,405 20,187
LT Debt 165,684 157,552 151,619 143,336 127,398
Other LT Liabilities 20,593 21,295 21,295 21,295 21,295
Shareholder’s Equity 37,349 55,196 74,607 86,110 99,415
Minority Interests 4,326 4,407 4,451 4,496 4,541
Total Cap. & Liab. 329,083 352,268 366,796 380,921 382,761

Non-Cash Wkg. Capital (43,276) (47,184) (49,389) (53,953) (58,663)

Net Cash/(Debt) (166,566) (154,287) (140,148) (130,692) (118,422)
Debtors Turn (avg days) 0.8 0.8 0.8 0.8 0.8
Creditors Turn (avg days) 74.4 71.3 70.9 70.6 70.8
Inventory Turn (avg days) 28.8 28.5 29.2 30.0 30.2
Asset Turnover (x) 1.2 1.3 1.3 1.4 1.5
Current Ratio (x) 0.6 0.6 0.7 0.7 0.6
Quick Ratio (x) 0.2 0.3 0.3 0.3 0.3
Net Debt/Equity (X) 4.0 2.6 1.8 1.4 1.1
Net Debt/Equity ex MI (X) 4.5 2.8 1.9 1.5 1.2
Capex to Debt (%) 10.0 8.6 9.3 9.6 10.9
Z-Score (X) 2.8 2.9 3.1 3.1 3.2
Source: Company, DBSVTH

Page 26
Company Guide
CP ALL

Cash Flow Statement (Btm)

FY Dec 2015A 2016A 2017F 2018F 2019F

Pre-Tax Profit 16,884 20,142 23,466 27,923 32,678

Dep. & Amort. 7,285 8,195 9,175 9,978 10,853
Tax Paid (3,066) (3,322) (3,824) (4,746) (5,881)
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. 5,065 8,060 2,152 4,508 4,651
Other Operating CF 0.0 0.0 0.0 0.0 0.0
Net Operating CF 31,419 37,939 34,508 39,570 44,169
Capital Exp.(net) (19,010) (16,263) (16,450) (16,450) (16,450)
Other Invts.(net) (68.3) 27.4 0.0 0.0 0.0
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF 1,669 (2,559) (2,610) (2,662) (2,715)
Net Investing CF (17,409) (18,794) (19,060) (19,112) (19,165)
Div Paid (7,186) (8,085) (9,447) (11,153) (12,901)
Chg in Gross Debt (9,177) (779) (12,038) (5,933) (20,283)
Capital Issues 0.0 0.0 0.0 0.0 0.0
Other Financing CF (8,416) 1,631 8,000 0.0 0.0
Net Financing CF (24,780) (7,233) (13,485) (17,087) (33,183)
Currency Adjustments 83.9 12.5 0.0 0.0 0.0
Chg in Cash (10,686) 11,925 1,963 3,371 (8,179)
Opg CFPS (Bt) 2.93 3.33 3.60 3.90 4.40
Free CFPS (Bt) 1.38 2.41 2.01 2.57 3.08
Source: Company, DBSVTH

Target Price & Ratings History

Bt
12- mt h
Dat e of Closing
80.57 S.No. T arget Rat ing
Report Pric e
Pric e
1: 24 F eb 17 59.75 75.00 BUY
75.57
2: 04 May 17 61.25 75.00 BUY
3: 12 May 17 64.50 75.00 BUY
70.57 4: 18 J ul 17 61.00 75.00 BUY
5: 24 J ul 17 60.75 75.00 BUY
6: 11 Aug 17 61.75 75.00 BUY
65.57 7: 20 Oct 17 69.25 84.00 BUY
8: 14 Nov 17 72.00 84.00 BUY
60.57

55.57
Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18

Not e : Share price and Target price are adjusted for corporate actions.
Source: DBSVTH
Analyst: Namida Artispong

THAI-CAC Declared
Corporate Governance CG Rating (as of Jul 2017) n/a

THAI-CAC is Companies participating in Thailand's Private Sector Score Description

Collective Action Coalition Against Corruption programme (Thai Declared Companies that have declared their intention to join CAC
CAC) under Thai Institute of Directors (as of June 27, 2017) are Certified Companies certified by CAC.
categorised into:
Score Range Number of Logo Description
Corporate Governance CG Rating is based on Thai Institute of 90-100 Excellent
Directors (IOD)’s annual assessment of corporate governance
practices of listed companies. The assessment covers 235 criteria 80-89 Very Good
in five categories including board responsibilities (35% weighting), 70-79 Good
disclosure and transparency (20%), role of stakeholders (20%),
equitable treatment of shareholders (10%) and rights of 60-69 Satisfactory
shareholders (15%). The IOD then assigns numbers of logos to
50-59 Pass
each company based on their scoring as follows:
<50 No logo given N/A

Page 27
 Company Guide
CP ALL

DBSVTH recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends

Completed Date: 26 Jan 2018 06:20:10 (THA)

Dissemination Date: 26 Jan 2018 06:25:06 (THA)

Sources for all charts and tables are DBSVTH unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH''). This report is solely intended for the clients of DBS Bank Ltd, its
respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in
any form or by any means or (ii) redistributed without the prior written consent of DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH'').

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other
factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or
warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific
investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees
only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial
advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)
arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not
to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons
associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to
update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.

Page 28
 Company Guide
CP ALL

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage
in market-making.

ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate 1 does not serve as an officer of the
issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real
estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment
banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the
DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates have a
proprietary position in CP ALL recommended in this report as of 29 Dec 2017.
2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research
Report.

Compensation for investment banking services:

3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a
manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further
information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document
should contact DBSVUSA exclusively.
Disclosure of previous investment recommendation produced:
4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other
investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1
An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of
which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person
accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2
Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a
new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term
does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new
listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Page 29
 Thailand Company Guide
Berli Jucker Public Co. Ltd
Version 1 | Bloomberg: BJC TB | Reuters: BJC.BK Refer to important disclosures at the end of this report

DBS Group Research . Equity 22 Mar 2018

BUY Attractive earnings growth profile

Last Traded Price ( 21 Mar 2018): Bt58.00 (SET : 1,801.43)
Price Target 12-mth: Bt70.00 (21% upside)
Analyst
Namida Artispong +66 2857 7833 namidaa@th.dbs.com
What’s New
• Expect solid growth in every business segment
• New glass furnace should lift margins of packaging unit
• High backlog of galvanised steel orders would support
its technical supply chain
• Focus on merchandising strategy to tackle aggressive
competition in hypermarket space
Solid growth traction for every business segment. Management
expects group topline in 2018 to grow at a high single-digit pace
in its all four business segments, except for the healthcare &
technical unit in which it expects double-digit revenue growth.
The profitability of its packaging business should be boosted by
the new glass furnace which would enhance production efficiency
and allow BJC to produce all its glass products in-house.
Meanwhile, improving domestic consumption would translate into
higher sales for consumer products, a higher government budget
for public health will drive BJC’s healthcare business segment and
the high backlog of galvanised steel orders will support its
technical supply chain. Additionally, a lower effective tax rate
should be another earnings booster for this year.

Merchandising strategy to deal with intense competition in

hypermarket space. Competition in modern retail should be more
Price Relative
Bt Relative Index
intense this year as the new CEO of Tesco Lotus Thailand CEO has
69.2
64.2
214
194
been very aggressive in terms of pricing strategy. Nevertheless, we
59.2
54.2
174
154
expect BJC’s modern retail unit to continue to deliver positive
SSSG in FY18F, supported by its merchandising strategy for fresh
49.2
134
44.2
114
39.2

food and home-line products and its plan to expand customer

94
34.2
29.2 74
24.2 54
Mar-14 Mar-15 Mar-16 Mar-17 Mar-18
base (especially corporate and HoReCa customers). Additionally,
BJC targets to add eight hypermarkets and 200 Mini Big C this
Berli Jucker Public Co. Ltd (LHS) Relative SET (RHS)

year, as well as, store renovations (six extensions, four right-sizing,

Forecasts and Valuation
FY Dec (Btm) 2016A 2017A 2018F 2019F and three full renovations) which would increase rental space.
Revenue 125,330 149,158 160,506 169,321 Where we differ? We believe its strong earnings growth profile
EBITDA 15,714 20,201 22,165 23,643
this year justifies the current trading multiple of 1.2x PEG FY18F.
Pre-tax Profit 5,517 8,235 9,463 10,590
Net Profit 3,307 5,211 6,725 7,580 Potential catalyst. i) Increasing glass production capacity. ii)
Net Pft (Pre Ex.) 2,473 5,259 6,725 7,580 Improving domestic consumption. iii) Accelerating government
Net Pft Gth (Pre-ex) (%) (8.0) 112.6 27.9 12.7 budget disbursement on healthcare. iv) Positive SSSG. v)
EPS (Bt) 1.28 1.31 1.68 1.90
Continuous modern retail store expansion. vi) Potential of
EPS Pre Ex. (Bt) 0.95 1.32 1.68 1.90
EPS Gth Pre Ex (%) (43) 38 28 13 expanding retail operations in ASEAN.
Diluted EPS (Bt) 1.27 1.30 1.68 1.89
Net DPS (Bt) 0.50 0.57 0.84 0.95
Valuation:
BV Per Share (Bt) 39.6 26.7 27.8 28.9 Our DCF TP is based on 7.4% WACC and 3 % terminal
PE (X) 45.5 44.4 34.4 30.5 growth rate.
PE Pre Ex. (X) 60.8 44.0 34.4 30.5
P/Cash Flow (X) nm 17.5 15.1 14.2 Key Risks to Our View:
EV/EBITDA (X) 19.6 19.2 17.4 16.2 i) Volatility in raw material prices. ii) Competition in the
Net Div Yield (%) 0.9 1.0 1.5 1.6 business industry. iii) Economic risk. iv) Interest rate risk.
P/Book Value (X) 1.5 2.2 2.1 2.0
Net Debt/Equity (X) 1.3 1.4 1.3 1.2 At A Glance
ROAE (%) 5.5 5.0 6.2 6.7 Issued Capital (m shrs) 3,997
Earnings Rev (%): 0 0 0 Mkt. Cap (Btm/US$m) 231,841 / 7,442
Consensus EPS (Bt): N/A 1.69 1.97 Major Shareholders (%)
Other Broker Recs: B: 13 S: 5 H: 6
TCC Corporation Co.Ltd (%) 64.58
Source of all data on this page: Company, DBSVTH, Bloomberg Finance UBS Ag Singapore Branch (%) 5.56
L.P DBS Bank Ltd (%) 4.32
Free Float (%) 25.1
3m Avg. Daily Val (US$m) 21.3
ICB Industry : Consumer Services / General Retailers

Page 30
ed: CK / sa: PY, CS
Company Guide
Berli Jucker Public Co. Ltd
WHAT’S NEW
Promising FY18F earnings growth profile
Expect high single-digit sales growth. Management expects
group topline in 2018 to grow at a high single-digit pace in
its all four business segments, except for the healthcare &
technical unit in which it expects double-digit revenue
growth. Meanwhile, gross profit margin is also targeted to
rise slightly, mainly from the glass packaging business.
Additionally, a lower effective tax rate should be another
earnings booster for this year.
New glass furnace to enhance segment’s margin. Rising
demand for glass packaging has been seen, especially from
food and beverage customers both in Thailand and in CLMV.
As a result, BJC’s current capacity is insufficient and some
volumes of its glass packaging have to rely on outsourced
production overseas by importing bottles. Nevertheless, the
fourth new furnace with an additional capacity of 300
tons/day was completed in 4Q17, bringing its total glass
production capacity to 3,035 tons/day as at end-2017.
Additionally, its fifth glass furnace which would add capacity
by 13.2% to 3,435 tons/day is expected to be completed by
3Q18. The new capacity would enhance production
efficiency, allowing BJC to produce all its glass products in-
house, and hence its profitability should also be boosted.
BJC: Glass packaging production capacity and utilisation
rate in Thailand
4,000
89%
3,500
3,000
89%
2,500
2,000
88%
3,035
1,500
2,695 2,728 2,735
1,000
500
-
2014 2015 2016 2017
Capacity (tons/day)- LHS Utilisation rate- RHS
Source: Company, DBSVTH
Can packaging business may face some challenges. As CBG
which is BJC’s third biggest client of aluminium can
packaging after THBEV and Redbull, is building its own
aluminium can packaging plant, BJC sales volume would be
impacted from Sep 2018 onwards. However, sales volume
from CBG in FY18F should still grow y-o-y and the impact
should be limited as CBG accounts for 10% of company’s can
sales or only 0.6% of group’s total sales. BJC has been
looking for new customers to replace CBG.
Solid sales growth momentum for consumer and healthcare
& technical supply chains. Improving domestic consumption
would translate into higher sales for consumer products (both
food and non-food) while increasing government’s budget on
public health will drive BJC’s healthcare business segment this
year. Meanwhile, the high backlog of galvanised steel orders
would support its technical supply chain.
Competition in hypermarket segment would be more
aggressive this year. Tesco Lotus Thailand (Tesco TH) has its
first Thai new CEO this year and the new CEO has been very
aggressive in terms of pricing strategy. Tesco TH launched its
annual ‘Price Rollback’ campaign after Chinese New Year.
This campaign is its biggest discount programme ever as it
offers the deepest and widest discount in the company's 15
years in Thailand, covering more than 1,000 items with
discounts of up to 40%. The discounts this year will also
cover fresh food which is in contrast with its exclusive focus
on dry and non-food products in previous years. Additionally,
the campaign will be applied to all of Tesco TH’s formats
from hypermarket to express stores and online platform.
Expect positive retail SSSG. Despite more intense competition
in the hypermarket space, we expect its modern retail unit to
continue to deliver positive SSSG in FY18F, supported by its
merchandising strategy in fresh food and home-line products,
improving domestic consumption sentiment, and its plan to
expand customer base (especially corporate and HoReCa
90% customers). BIGC focuses on food quality and freshness to
90%
draw customer traffic while it also targets to level up its own
private label sales of home-line products. The company
89%
projects SSSG to be at mid-single-digit in FY18F (vs ours at
89% 3.5%). For the first two months of this year, SSSG is flat as
3,434 88%
Chinese New Year and Valentine’s Day were in the same
period this year and hence, it was like having only one event
88%
instead of two.
87%
Adding new retail outlets. BJC targets to add eight
2018F
87%
hypermarkets and 200 Mini Big C this year, as well as, store
renovations (six extensions, four right-sizing, three full
renovations) which would increase rental space. The format
of hypermarket to be opened this year will be mostly the
3K/4K model (3,000 to 4,000 sqm of sales area) while the
expansion would be spread out throughout the year.
Page 31
 Company Guide
Berli Jucker Public Co. Ltd

BJC: Modern retail store expansion plan Lower effective tax rate to boost FY18F earnings. BJC’s tax
restructuring is expected to be completed in mid-2018 and
Number of st ores
Operat or thus the company will be able to utilise tax shield benefits from
2015 2016 2017 2018F the interest expenses of loans taken for the acquisition of BIGC
BIG C Supercenter 110 116 125 133 and the tax benefits should be applied in 2H18. This would
BIG C Extra 15 15 15 15
make the FY18F effective tax rate lower than 20% (vs 27.3%
in FY17).
BIG C Market 55 59 60 60
Mini BIG C 391 465 642 842

Source: Company, DBSVTH

Page 32
Company Guide
Berli Jucker Public Co. Ltd

Revenue breakdown by segment

CRITICAL DATA POINTS TO WATCH 120%

100% 3% 4% 1% 0%
Critical Factors 19% 17%
Expansion of glass production capacity. Previously, BJC had 80%
65%
three furnaces in Thailand with a total capacity of 2,735 60% 39% 38%
70%

tons/day. Given insufficient production capacity, BJC has been 40%

importing some of its bottle parts from factories overseas such 6%
5%
20% 40% 41% 13% 11%
as those from China and Turkey. Recently, the fourth new 15% 13%
furnace with an additional capacity of 300 tons/day was 0%
2014 2015 2016 2017
completed in 4Q17, bringing its total glass production capacity
Packaging Consumer products Healthcare & technical
to 3,035 tons/day as at end-2017. The company plans to add
Modern retail Others
another 400 tons/day by mid-2018 at its fifth furnace. The
additional own capacity would enhance BJC’s operating margin Operating profit breakdown by segment
as importing incurs higher operating costs. 120%

Improving domestic consumption and accelerating government 100% 14% 6%

24%
budget disbursement on public health. We expect to see a more 80%
32%
broad-based recovery in 2018. Strong growth in export and 60%
17% 55%

tourism, accelerating infrastructure investment, a pick-up in 40% 7%

private investment, expectation of a hike in the country’s 60% 58% 6%
20%
minimum wage in April this year, and the upcoming general 26%
0% -2% -4%
election in 1Q19 should serve as catalysts for domestic spending 2014 2015 2016
-20%
in 2018. Improving domestic consumption would translate into
Packaging Consumer products Healthcare & technical
higher sales from consumer products and modern retail for BJC. Modern retail Others
For healthcare business segment, the operations rely heavily on
the government’s budget disbursement on public healthcare as Net margin by segment
70% of its customers are public hospitals. According to the 12.0% 11.1%

Ministry of Public Health, the government’s budget on public 10.0% 9.0%

9.7%

health is expected to increase by 4% and 12% in FY18F and 7.6%

8.0% 7.1% 7.1%
FY19F respectively. This should support sales at BJC’s healthcare 7.1%
6.3%

supply chain. 6.0%

Positive retail SSSG and continuous outlet rollout. We expect 5.9% 5.9% 5.8%
4.0% 4.8%
the modern retail unit to continue to deliver positive SSSG,
supported by its merchandising strategy in fresh food and 2.0% 3.4%
2.3%

home-line products and improving domestic consumption 1.0% 1.3%

0.0%
sentiment. BIGC is now using fresh food to draw customer 2013 2014 2015 2016
traffic, by emphasising on food quality and freshness. Packaging Consumer products Healthcare & technical Modern retail
Meanwhile, BIGC is using its home-line products to level up its
own private label sales proportion in order to increase its gross Packaging revenue breakdown by product
margin, as private labels yield a 300-bp higher margin than
Plastic, 2%
common brands. Additionally, we expect the company to
expand its key retail formats; Hypermarket and Mini BIG C at
the pace of eight and 200 outlets respectively in FY18F. Most of
Aluminum can,
the new stores will be outside Bangkok. 44% Glass, 54%

Growing its retail empire in Vietnam. We expect BJC to resume

its retail network expansion in ASEAN (particularly in Vietnam)
soon with its owned channels like Mega Market (cash-and-carry
store chain in Vietnam) and B’s Mart (the fourth largest
convenience store chain in Vietnam). BJC will be able to
leverage its retail expertise from BIGC to build and improve the
businesses of its other retail chains in ASEAN. The potential of Modern retail revenue breakdown by product
expanding retail operations in ASEAN should strengthen BJC’s Soft
Home line, line, 8%
long-term growth story and offer upside to our and street’s 9%

valuations. Hard line,

15%

Fresh and dry

food, 68%

Source: Company, DBSVTH

Page 33
 Company Guide
Berli Jucker Public Co. Ltd

Leverage & Asset Turnover (x)

Balance Sheet: 1.0

Debt-to-equity stood at 1.4x in 2017. As BJC paid a hefty 1.40

0.9
premium for BIGC, whose business is much bigger than BJC's, 1.20
0.8
debt issuance and equity raising were inevitable in 2016. 1.00

Accordingly, BJC’s interest-bearing debt-to-equity had risen 0.80 0.7

from 0.9x in 2015 to 1.5x in 2016. However, BJC’s cash cycle 0.60
0.6
days have improved, thanks to the positive working capital of its 0.40
0.5
modern retail business while the consolidation of BIGC uplifted 0.20

BJC’s operating cash flows. 0.00

2015A 2016A 2017A 2018F 2019F
0.4

Gross Debt to Equity (LHS) Asset Turnover (RHS)

Share Price Drivers:

Capital Expenditure
i) Increasing glass production capacity. ii) Improving domestic Btm
consumption. iii) Accelerating government budget disbursement 60,000.0

on healthcare. iv) Positive SSSG. v) Continuous modern retail 50,000.0

store expansion. vi) Potential of expanding retail operations in 40,000.0

ASEAN. 30,000.0

20,000.0

10,000.0
Key Risks:
0.0
Volatility in raw material prices. Raw materials like glass, 2015A 2016A 2017A 2018F 2019F

aluminium, sheet, etc. account for the largest part in production Capital Expenditure (-)

costs. The fluctuations in the supply costs would have an ROE (%)
imperative impact on the company’s gross profit margins.
16.0%

14.0%
Competition in the business industry. Competition in consumer
12.0%
products and modern retail businesses is strong. Nevertheless,
10.0%
competition in packaging and healthcare & technical operations 8.0%
is less fierce due to high barriers to entry. 6.0%

4.0%

2.0%
Economic risk. BJC’s businesses can be weakened if the 0.0%
economy deteriorates, which will then dampen consumption 2015A 2016A 2017A 2018F 2019F

expenditure. Forward PE Band (x)

(x)

Interest rate risk. BJC’s financial position has been dampened 43.4
+2sd: 41.6x
following its BIGC acquisition in 2016. As at end-2016, its 38.4
+1sd: 36.3x
interest-bearing debt-to-equity stood at 1.5x. Any rising trend 33.4
of interest rate would weigh on its debt burden. Avg: 31x
28.4
-1sd: 25.7x
Company Background 23.4

BJC was founded in 1882 and has over 135 years of business 18.4
-2sd: 20.4x

heritage. It is a trader and manufacturer of consumer products Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

under the TCC Group with exposure in Thailand and ASEAN,

PB Band (x)
particularly in Vietnam and Laos. BJC’s major businesses include (x)
packaging, consumer products, healthcare and technical 6.1

products/services, and most recently modern retail operations. 5.1 +2sd: 5.04x
As there is low correlation among each business unit, its 4.1
+1sd: 3.83x
diversified business portfolio should generate more stable
3.1
operations and earnings. Meanwhile, a strong business platform Avg: 2.62x
with TCC Group has helped BJC to strengthen the distribution 2.1

network of its consumer product segment. 1.1

-1sd: 1.41x

0.1 -2sd: 0.2x

Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

Source: Company, DBSVTH

Page 34
Company Guide
Berli Jucker Public Co. Ltd

Income Statement (Btm)

FY Dec 2015A 2016A 2017A 2018F 2019F
Revenue 42,893 125,330 149,158 160,506 169,321
Cost of Goods Sold (33,071) (102,735) (120,706) (129,208) (135,967)
Gross Profit 9,822 22,595 28,452 31,298 33,355
Other Opng (Exp)/Inc (5,701) (13,158) (15,664) (17,292) (18,234)
Operating Profit 4,121 9,437 12,787 14,007 15,120
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 87.1 181 24.1 26.5 29.2
Net Interest (Exp)/Inc (471) (5,165) (4,510) (4,571) (4,560)
Exceptional Gain/(Loss) 116 1,064 (66.6) 0.0 0.0
Pre-tax Profit 3,853 5,517 8,235 9,463 10,590
Tax (400) (1,196) (2,260) (1,887) (2,112)
Minority Interest (661) (1,015) (764) (851) (897)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Profit 2,792 3,307 5,211 6,725 7,580
Net Profit before Except. 2,688 2,473 5,259 6,725 7,580
EBITDA 6,350 15,714 20,201 22,165 23,643
Growth
Revenue Gth (%) 2.9 192.2 19.0 7.6 5.5
EBITDA Gth (%) 28.2 147.5 28.6 9.7 6.7
Opg Profit Gth (%) 37.5 129.0 35.5 9.5 8.0
Net Profit Gth (Pre-ex) (%) 61.0 (8.0) 112.6 27.9 12.7
Margins & Ratio
Gross Margins (%) 22.9 18.0 19.1 19.5 19.7
Opg Profit Margin (%) 9.6 7.5 8.6 8.7 8.9
Net Profit Margin (%) 6.5 2.6 3.5 4.2 4.5
ROAE (%) 17.4 5.5 5.0 6.2 6.7
ROA (%) 6.3 1.9 1.7 2.1 2.4
ROCE (%) 10.9 5.0 3.5 4.2 4.5
Div Payout Ratio (%) 47.9 39.2 43.7 50.0 50.0
Net Interest Cover (x) 8.7 1.8 2.8 3.1 3.3
Source: Company, DBSVTH

Page 35
 Company Guide
Berli Jucker Public Co. Ltd

Quarterly / Interim Income Statement (Btm)

FY Dec 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017

Revenue 36,645 35,677 37,107 37,067 39,307

Cost of Goods Sold (30,423) (29,075) (30,328) (29,799) (31,505)
Gross Profit 6,222 6,602 6,779 7,268 7,802
Other Oper. (Exp)/Inc (3,892) (3,807) (3,851) (4,005) (4,001)
Operating Profit 2,330 2,795 2,928 3,263 3,801
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 27.3 23.9 (6.9) 6.64 0.40
Net Interest (Exp)/Inc (1,161) (1,121) (1,108) (1,112) (1,169)
Exceptional Gain/(Loss) 36.6 (51.4) (0.8) 8.80 (23.3)
Pre-tax Profit 1,233 1,647 1,813 2,166 2,609
Tax (7.7) (531) (595) (576) (558)
Minority Interest (188) (151) (222) (203) (188)
Net Profit 1,037 965 996 1,387 1,863
Net profit bef Except. 1,001 1,000 996 1,380 1,882
EBITDA 4,189 4,610 4,731 5,169 5,731

Growth
Revenue Gth (%) 9.5 (2.6) 4.0 (0.1) 6.0
EBITDA Gth (%) (7.8) 10.1 2.6 9.3 10.9
Opg Profit Gth (%) (13.3) 20.0 4.7 11.4 16.5
Net Profit Gth (Pre-ex) (%) 70.5 (0.1) (0.3) 38.5 36.3
Margins
Gross Margins (%) 17.0 18.5 18.3 19.6 19.8
Opg Profit Margins (%) 6.4 7.8 7.9 8.8 9.7
Net Profit Margins (%) 2.8 2.7 2.7 3.7 4.7

Balance Sheet (Btm)

FY Dec 2015A 2016A 2017A 2018F 2019F

Net Fixed Assets 18,589 62,399 66,354 68,223 69,229

Invts in Associates & JVs 3,533 34,537 35,198 35,225 35,253
Other LT Assets 4,198 175,772 174,965 174,965 174,965
Cash & ST Invts 1,130 3,486 4,368 1,956 4,527
Inventory 7,244 19,882 19,132 20,442 21,522
Debtors 9,771 12,548 13,831 15,211 16,666
Other Current Assets 236 76.6 1,212 1,304 1,376
Total Assets 44,701 308,701 315,059 317,325 323,538

ST Debt 7,521 20,646 17,154 17,122 17,023

Creditor 7,554 30,487 31,388 33,538 35,309
Other Current Liab 238 719 1,712 1,842 1,943
LT Debt 7,454 131,362 139,528 134,168 133,116
Other LT Liabilities 1,183 14,340 14,104 14,245 14,387
Shareholder’s Equity 17,063 102,737 106,514 110,901 115,352
Minority Interests 3,688 8,412 4,659 5,510 6,407
Total Cap. & Liab. 44,701 308,701 315,059 317,325 323,538

Non-Cash Wkg. Capital 9,458 1,302 1,074 1,577 2,311

Net Cash/(Debt) (13,845) (148,522) (152,314) (149,333) (145,612)
Debtors Turn (avg days) 80.7 32.5 32.3 33.0 34.4
Creditors Turn (avg days) 74.9 63.2 87.5 85.6 86.2
Inventory Turn (avg days) 80.9 48.2 59.0 55.9 56.3
sset Turnover (x) 1.0 0.7 0.5 0.5 0.5
Current Ratio (x) 1.2 0.7 0.8 0.7 0.8
Quick Ratio (x) 0.7 0.3 0.4 0.4 0.4
Net Debt/Equity (X) 0.7 1.3 1.4 1.3 1.2
Net Debt/Equity ex MI (X) 0.8 1.4 1.4 1.3 1.3
Capex to Debt (%) 18.0 32.8 7.2 6.6 6.3
Z-Score (X) 0.0 0.0 0.0 0.0 0.0
Source: Company, DBSVTH

Page 36
Company Guide
Berli Jucker Public Co. Ltd

Cash Flow Statement (Btm)

FY Dec 2015A 2016A 2017A 2018F 2019F

Pre-Tax Profit 3,853 5,517 8,235 9,463 10,590

Dep. & Amort. 2,141 6,096 7,389 8,131 8,494
Tax Paid (495) (2,231) (3,163) (2,804) (3,025)
Assoc. & JV Inc/(loss) (87.1) (181) (24.1) (26.5) (29.2)
Chg in Wkg.Cap. (841) 8,156 228 (503) (734)
Other Operating CF (15.5) (189,565) 531 1,057 1,056
Net Operating CF 4,556 (172,208) 13,196 15,318 16,351
Capital Exp.(net) (2,689) (49,905) (11,345) (10,000) (9,500)
Other Invts.(net) 0.13 (296) (373) 0.0 0.0
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF (0.1) 296 373 0.0 0.0
Net Investing CF (2,689) (49,905) (11,345) (10,000) (9,500)
Div Paid (955) (1,091) (1,584) (3,022) (3,534)
Chg in Gross Debt (1,257) 137,032 4,674 (5,393) (1,150)
Capital Issues 0.0 83,490 314 685 404
Other Financing CF 236 3,974 (4,307) 0.0 0.0
Net Financing CF (1,977) 223,405 (903) (7,730) (4,280)
Currency Adjustments 116 1,064 (66.6) 0.0 0.0
Chg in Cash 6.96 2,356 882 (2,411) 2,571
Opg CFPS (Bt) 3.39 (69.6) 3.25 3.96 4.28
Free CFPS (Bt) 1.17 (85.7) 0.46 1.33 1.72
Source: Company, DBSVTH

Target Price & Ratings History

Bt
12- mt h
Dat e of Closing
65.13 S.No. T arget Rat ing
Report Pric e
Pric e
1: 08 Mar 18 59.25 70.00 BUY
60.13

55.13

50.13

45.13

40.13
Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18

Not e : Share price and Target price are adjusted for corporate actions.
Source: DBSVTH
Analyst: Namida Artispong

THAI-CAC Declared
Corporate Governance CG Rating (as of Oct 2017)

THAI-CAC is Companies participating in Thailand's Private Sector Score Description

Collective Action Coalition Against Corruption programme (Thai Declared Companies that have declared their intention to join CAC
CAC) under Thai Institute of Directors (as of Feb 2018) are Certified Companies certified by CAC.
categorised into:
Score Range Number of Logo Description
Corporate Governance CG Rating is based on Thai Institute of 90-100 Excellent
Directors (IOD)’s annual assessment of corporate governance
practices of listed companies. The assessment covers 235 criteria 80-89 Very Good
in five categories including board responsibilities (35% weighting), 70-79 Good
disclosure and transparency (20%), role of stakeholders (20%),
equitable treatment of shareholders (10%) and rights of 60-69 Satisfactory
shareholders (15%). The IOD then assigns numbers of logos to
50-59 Pass
each company based on their scoring as follows:
<50 No logo given N/A

Page 37
 Company Guide
Berli Jucker Public Co. Ltd

DBSVTH recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends

Completed Date: 22 Mar 2018 06:19:27 (THA)

Dissemination Date: 22 Mar 2018 06:29:17 (THA)

Sources for all charts and tables are DBSVTH unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Vickers Securities (Thailand) Co Ltd (''DBSVTH''). This report is solely intended for the clients of DBS Bank Ltd, its
respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in
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The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other
factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or
warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
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Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
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The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
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The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
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UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
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Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.

Page 9
Page 38
 Company Guide
Berli Jucker Public Co. Ltd

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage
in market-making.

ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
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issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real
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2
his associate does not have financial interests in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
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DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates do not
have a proprietary position in the securities recommended in this report as of 28 Feb 2018.
2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research
Report.

Compensation for investment banking services:

3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a
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should contact DBSVUSA exclusively.
Disclosure of previous investment recommendation produced:
4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other
investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
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1
An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of
which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person
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2
Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a
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does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new
listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Page 39
 Singapore Company Guide
Dairy Farm
Version 8 | Bloomberg: DFI SP | Reuters: DAIR.SI Refer to important disclosures at the end of this report

DBS Group Research . Equity 28 Mar 2018

BUY Positive on Rustan spin-off

Last Traded Price ( 27 Mar 2018): US$8.00 (STI : 3,439.35)
Price Target 12-mth: US$9.77 (22% upside) (Prev US$9.54)
Analyst
Alfie YEO +65 6682 3717 alfieyeo@dbs.com
Andy SIM, CFA +65 6682 3718 andysim@dbs.com
What’s New
 Positive on DFI’s spin-off of Rustan Supercenter Inc. to
Robinson Retail Holdings Inc. (RRHI)
 Earnings raised by marginal 2-3% to account for stake
in RRHI
 We assess value of RRHI deal to be worth an additional
c.US$0.23 to our TP net of debt financing
 Maintain BUY; TP raised to US$9.77
Price Relative
US$
12.0
Reiterate BUY, more positive on partnership deal with RRHI. We
turn more positive on DFI’s recent deal with Robinson’s Retail
Holdings Inc. (RRHI) to spin off Rustan Supercenter Inc. for an
18% stake in RRHI. We assess that the deal will add US$0.23 to
our TP, raising it to US$9.77. We see the 18% stake in RRHI
translating into an immediate net value for DFI as Rustan is still
loss making, and hence swapping a loss-making business into
shares of RRHI would present upside to both earnings and TP.
Current share price ex-Yonghui and RRHI values DFI’s core
business at just 16x forward PE, below the regional peers’
average and its 9-year historical average forward PE of 24x.
Where we differ: We are positive that the new CEO Ian McLeod
and his initiatives to improve performances of the stores will pay
off over the next few years. Already, more emphasis is being
placed on store operations on a more detailed basis from
merchandising to display, sourcing, pricing space management,
cost management, etc. He also has a track record of turning
around Coles in Australia.
Relative Index

Potential catalyst: We see earnings turnaround going forward as

219
11.0 199

a stock catalyst and swapping Rustan for RRHI shares is part of

10.0 179
159
9.0

this process. We believe successful implementation of strategies

139
8.0
119
7.0

by new CEO Ian McLeod will be key to earnings recovery.

99
6.0 79
5.0 59
Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

Dairy Farm (LHS) Relative STI (RHS)

Valuation:
Forecasts and Valuation SOTP valuation methodology. Our target price of US$9.77 is
FY Dec (US$ m) 2016A 2017A 2018F 2019F derived from sum-of-parts valuation methodology. We value
Revenue 11,201 11,289 11,440 11,691 DFI's core business at US$7.72 based on DCF, 20% and 18%
EBITDA 784 805 864 925 stakes in Yonghui and RRHI based on the market values at
Pre-tax Profit 555 486 610 662 US$2.28 and US$0.31respectively; and higher net debt at
Net Profit 469 404 519 563
Net Pft (Pre Ex.) 463 476 519 563 US$0.54 per share (post financing of its 6.1% stake in RRHI).
Net Pft Gth (Pre-ex) (%) 8.1 2.8 9.1 8.4
EPS (US cts.) 34.7 29.8 38.4 41.6 Key Risks to Our View:
EPS Pre Ex. (US cts.) 34.2 35.2 38.4 41.6 Significant earnings disappointment. We expect earnings
EPS Gth Pre Ex (%) 8 3 9 8 growth to accelerate in FY18F as management brings in better
Diluted EPS (US cts.) 34.7 29.8 38.4 41.6
operating efficiencies. We believe that earnings would have to
Net DPS (US cts.) 21.0 21.0 21.0 21.0
BV Per Share (US cts.) 111 125 142 163 disappoint significantly to derail our positive bias on the stock.
PE (X) 23.1 26.8 20.8 19.2
PE Pre Ex. (X) 23.4 22.7 20.8 19.2 At A Glance
P/Cash Flow (X) 19.9 16.1 20.5 16.1 Issued Capital (m shrs) 1,353
EV/EBITDA (X) 14.7 14.3 13.4 12.3 Mkt. Cap (US$m/US$m) 10,821 / 10,821
Net Div Yield (%) 2.6 2.6 2.6 2.6 Major Shareholders (%)
P/Book Value (X) 7.2 6.4 5.6 4.9
Jardine Matheson Holdings 77.6
Net Debt/Equity (X) 0.4 0.3 0.4 0.2
ROAE (%) 32.6 25.3 28.7 27.3 Commonwealth Bank of Australia 6.0
Free Float (%) 16.4
Earnings Rev (%): 2 3
Consensus EPS (US cts.): 39.4 43.5 3m Avg. Daily Val (US$m) 4.6
Other Broker Recs: B: 7 S: 0 H: 2 ICB Industry : Consumer Services / Food & Drug Retailers

Source of all data on this page: Company, DBS Bank, Bloomberg

Finance L.P

Page 40
ed: TH / sa:YM, PY, CS
Company Guide
Dairy Farm
WHAT’S NEW
Rustan spin-off to add US$0.23 net (after financing) to our TP
Dairy Farm sells Rustan Supercenter Inc. for stake in RRHI:
Dairy Farm International (DFI) announced on Friday that it will
enter into a partnership deal with Robinson’s Retail Holdings
Inc. (RRHI). The deal sees DFI 1) selling 100%-owned Rustan
Supercenter Inc. to RRHI for 12.15% new RRHI shares worth
US$346m; and 2) buying up an additional 6.1% shares in
RRHI worth US$174m, both valued at a price of P94 per RRHI
share, above the current share price. DFI’s 6.1% shares are
facilitated via sale of shares by Gokongwei, while the 12.15%
stake in RRHI (from the sale of Rustan) will be paid to DFI via
new shares. DFI will ultimately own 18.25% (12.15%+6.1%)
of RRHI, while the Gokongwei family will ultimately reduce
their stake from 65% to 51% after the share sale and new
share dilution. RRHI will thereafter take in 100% of Rustan
into its operations and DFI will take two board seats in RRHI.
DFI will fund the additional 6.1% investment of US$174m
via internal cash and bank borrowings. Rustan Supercenters,
Inc. operates Rustan’s Supermarkets, the Shopwise chain of
hypermarkets and Wellcome. It has a total of around 60
outlets with presence largely centered around metro Manila.
DFI sells 100% of Rustan Supercenter Inc. in Philippines to
RRHI and swaps for 18% stake in RRHI
Gok ongwe i
Public DFI
fa mily
51% 31% 18%
RRHI
100% 100%
Rus ta n Rus ta n
Source: DFI, RRHI, DBS Bank
Positive for DFI: As Rustan posted a net loss in FY17, there is
no earnings valuation in this deal. DFI has essentially
converted a loss-making operation in Philippines into a
12.15% stake in RRHI, which we think is positive. Even
though it has bought the additional 6.1% of RRHI above
market price at a price of P94 per share, this is well
compensated by the US$346m that it will receive for spinning
off the loss-making Rustan. Furthermore, there is little or no
impact on DFI’s earnings as Rustan’s losses only contributes to
less than 1% of group earnings. We do not see any major
issue for DFI to finance the US$174m as the company is
capable of generating US$200-300m of operating cashflow
net of capex a year, and it already has US$332m cash on its
books as of FY17.
Negative for RRHI: The deal is negative for RRHI’s share price
as 1) shareholders will experience earnings dilution by as
much as 15%, and 2) margins will be reduced when RRHI
takes in loss-making Rustan. We know that Rustan continued
to post an EBIT loss in FY17 although we do not know the
absolute dollar losses. For comparison, Rustan’s net loss for
FY15 was P300m, 5.5% of RRHI’s FY17 earnings forecast and
7% of RRHI’s FY15 net profit. Based on our back of the
envelope calculations, the target price could be reduced by
c.6-7%. We believe RRHI sees Rustan as a way to compete
over the long term, with immediate improvement in market
share, store network and presence especially in Metro Manila
where it also competes with SM and PGold.
We expect RRHI's earnings contribution to lift DFI’s FY18-19F
earnings by 2-3%: When DFI bought a 20% of Yonghui
Superstores in 2015, it accounted Yonghui’s earnings as
JV/associate income. We believe accounting for RRHI’s
earnings could be the same and hence we factor in upcoming
earnings contribution of RRHI, lifting JV/associate income by
9% in FY18F and 12% in FY19F. This translates into a 2-3%
earnings revision for FY18-19F.
RRHI deal adds US$0.23 to our TP, raising it to US$9.77;
maintain BUY: We estimate that this exercise could add
c.US$0.23 to our DFI TP. Taking out a loss-making Rustan
from DFI presents little or no change to earnings. But the
18% stake in RRHI will add c.US$0.31 with the difference of
c.US$0.08 being cash decline used to pay down the 6.1%
stake. Post factoring in the impact of RRHI deal, current share
price now values core business at 16x FY18F PE. Based on
SOTP TP methodology, we now value DFI at US$9.77, with
core business at US$7.72 based on DCF, stake in Yonghui at
US$2.28 based on market value, gross stake in RRHI at
US$0.31 before financing, and higher net debt of US$0.54
(assuming 100% financing of its 6.1% stake in RRHI).
Page 41
 Company Guide
Dairy Farm

Number of outlets
CRITICAL DATA POINTS TO WATCH
5138 5159 5202 5260
5312.6 5077

Critical Factors 4553.6

3794.7

Building an integrated high performing business. Following the 3035.8

appointment of new CEO Ian McLeod in 2H17, DFI’s management 2276.8

strategy includes building up its management capability, growth in 1517.9

China, maintaining strong position in Hong Kong, revitalising 758.9

Southeast Asia, and driving digital innovation. The new CEO has 0.0
already closed several underperforming and loss-making Supermarket 2015A 2016A 2017A 2018F 2019F

and Hypermarket stores, mainly in Malaysia, Singapore and

Sales per store blended
Indonesia, whose performance he believes will not improve. He has
2.17 2.21 2.19 2.2 2.22
appointed CEOs for 7-eleven and Mannings to drive China’s growth. 2.3

He will also invest to strengthen its brands in Hong Kong. Plans to 1.8
revitalise Southeast Asia include strategic review and management
1.4
recruitment. Back-end IT development will continue.
0.9
Expect store performance to strengthen. We are strengthening store
0.5
performance assumptions going forward, especially in Southeast
Asia, as the new CEO implements plans including product range, 0.0

space management, pricing strategy, consolidated sourcing, etc. 2015A 2016A 2017A 2018F 2019F

There is currently a strategic review on Southeast Asia which we Segment revenue FY17
believe will improve product range and pricing while store closures
have already been made. Operational inconsistencies (e.g.
procurement, space management) across stores are also being Southeast
Asia
addressed.
39%

More efficient back-end operations. We see DFI strengthening back-

end operations regionally for the long term, with much of the focus North Asia
geared towards improving operating efficiencies especially at both 61%
store and back-end levels. The areas include e-commerce, IT
infrastructure, supply chain, and food and product safety. Growth
will be supported by its private label programme, and more Segment revenue FY17
distribution centres across its markets. It has already opened a fresh Home
distribution centre in Singapore and new distribution centres in furnishing
stores
Malaysia and Philippines. In addition, more attention will be focused 6%
on operations at store level in the areas of merchandising, display, Health &
procurement and sourcing, etc. We believe these will help drive beauty
stores
higher margins going forward. 23%

Synergies with Yonghui. We expect more synergies with increased

collaboration in the sharing of food supplies. These include sharing
suppliers and accessing Yonghui’s fresh food (e.g. fruits, etc.) supply
chain for its stores in Singapore, Malaysia, Hong Kong, and the Food
Philippines. 71%

EBIT margin %
5.5

5.0

4.5

4.0

3.5

3.0
2013A 2014A 2015A 2016A 2017A 2018F 2019F

Source: Company, DBS Bank

Page 42
Company Guide
Dairy Farm

Appendix 1: A look at Company's listed history – what drives its share price?

Correlation between share price and absolute operating profit (EBIT) is strong at 0.8x

(US$) US$m
16.00 EBIT (RHS) Price (LHS) 600
14.00 Gross profit grew 550
by 8% CAGR to
12.00 US$1.4bn 500
10.00 450
8.00 400
6.00 350
4.00 Opex increased by 5% CAGR, 300
reducing EBIT margins from 5.8% to EBIT grew 4% y-o-y on
2.00 4.2% stronger gross margin 250
0.00 200
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Source: DBS Bank

Page 43
 Company Guide
Dairy Farm

Leverage & Asset Turnover (x)

Balance Sheet: 2.5

Lower net debt. DFI’s net debt-to-equity fell from 0.43x to 0.70
2.4
0.36x with net debt at US$602m as at end-FY17, led by debt 0.60

repayment and higher cash balances generated. The net debt 0.50 2.3

initially resulted from the purchase of Yonghui in FY16. DFI’s 0.40

2.2

business generates strong operational cash flows of over 0.30

2.1
US$500m a year. We believe that DFI’s debt will pare down 0.20
2.0
over the next few years. 0.10

0.00 1.9
2015A 2016A 2017A 2018F 2019F
Share Price Drivers: Gross Debt to Equity (LHS) Asset Turnover (RHS)

Earnings turnaround. We believe share price upside will be

Capital Expenditure
driven by earnings recovery. Our view on the stock is based on US$m
DFI’s ability to turn in more efficient operations going forward 300.0

that will drive earnings growth. Key indicators are higher 250.0

contribution by Yonghui and margin expansion of core business 200.0

through better cost management and margin enhancement 150.0

initiatives (i.e. distribution centres). IT and backend 100.0
enhancement initiatives should also support a better cost
50.0
structure in terms of centralised procurement, logistics and
0.0
other operations, etc. 2015A 2016A 2017A 2018F 2019F

Capital Expenditure (-)

Cooperation with Yonghui may drive long-term share price. We

ROE (%)
are positive on DFI’s Yonghui investment because the
partnership with Yonghui provides a good platform to scale up 30.0%

DFI’s business in China. Longer-term opportunities include 25.0%

exposure to China’s modern grocery retail consumption, more 20.0%

Mannings stores and better supply of products to each other.
15.0%

10.0%
Key Risks:
Profitability susceptible to rental and labour costs. As a retailer, 5.0%

labour and rental costs are key operating cost components. 0.0%

Significant changes in these components will affect earnings 2015A 2016A 2017A 2018F 2019F

growth. Higher rental and labour costs were seen in Hong Forward PE Band (x)
Kong, Singapore and Indonesia in FY15-16, which resulted in (x)
lower margins. 33.1
+ 2sd: 20x

Competitive pressure. Grocery retail customers can be price 28.1 + 1sd: 17x

sensitive and may switch to retailers which offer more

Avg: 23.3x
promotions. This can be a risk to market share, sales and 23.1

earnings growth. In times of weaker consumer sentiment, -1sd: 10.9x

18.1
customers may trade down from high-end supermarkets to the
mass-market segment. DFI has plans to strengthen its 13.1
-2sd: 7.8x

marketing to the mass-market segment and target specifically Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

local consumers. PB Band (x)

(x)
Company Background 11.0
Dairy Farm is a Pan Asian retailer, operating over 6,400 10.0
+ 2sd: 20x

supermarkets, hypermarkets, health and beauty stores, 9.0 + 1sd: 17x

convenience stores, home furnishing stores and restaurants 8.0
under well-known brand names in Hong Kong, Taiwan, China, 7.0
Avg: 7.46x

Macau, Singapore, India, the Philippines, Cambodia, Brunei, 6.0 -1sd: 10.9x
Malaysia, Indonesia and Vietnam. 5.0
-2sd: 7.8x
4.0
Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

Source: Company, DBS Bank

Page 44
Company Guide
Dairy Farm

Key Assumptions
FY Dec 2015A 2016A 2017A 2018F 2019F
Number of outlets 5,138 5,077 5,159 5,202 5,260
Sales per store blended 2.17 2.21 2.19 2.20 2.22
Segmental Breakdown
FY Dec 2015A 2016A 2017A 2018F 2019F
Revenues (US$m)
Food 8,197 8,168 8,038 7,897 7,829
Health & beauty stores 2,373 2,436 2,597 2,809 3,038
Home furnishing stores 568 597 653 734 824

Total 11,137 11,201 11,289 11,440 11,691

Operating profit (US$m)
Food 236 267 220 216 217
Health & beauty stores 186 176 210 225 243
Home furnishing stores 63.6 70.6 68.0 76.4 85.9
Support office/others (49.6) (60.7) (57.7) (58.5) (59.8)

Total 435 453 440 459 486

Operating profit Margins
Food
(%) 2.9 3.3 2.7 2.7 2.8
Health & beauty stores 7.8 7.2 8.1 8.0 8.0
Home furnishing stores 11.2 11.8 10.4 10.4 10.4
Support office/others N/A N/A N/A N/A N/A

Total 3.9 4.0 3.9 4.0 4.2

Income Statement (US$m)

FY Dec 2015A 2016A 2017A 2018F 2019F
Revenue 11,137 11,201 11,289 11,440 11,691
Cost of Goods Sold (7,852) (7,815) (7,856) (8,008) (8,184)
Gross Profit 3,285 3,386 3,433 3,432 3,507
Other Opng (Exp)/Inc (2,850) (2,933) (2,992) (2,973) (3,021)
Operating Profit 435 453 440 459 486
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 85.0 118 144 177 206
Net Interest (Exp)/Inc (13.6) (21.8) (26.3) (25.8) (30.8)
Exceptional Gain/(Loss) (4.2) 6.20 (72.3) 0.0 0.0
Pre-tax Profit 503 555 486 610 662
Tax (84.5) (85.1) (92.9) (105) (113)
Minority Interest 5.80 (1.1) 10.6 13.3 14.4
Preference Dividend 0.0 0.0 0.0 0.0 0.0 Includes 18% earnings
Net Profit 424 469 404 519 563 contribution from RRHI.
Net Profit before Except. 428 463 476 519 563
EBITDA 732 784 805 864 925
Growth
Revenue Gth (%) 1.2 0.6 0.8 1.3 2.2
EBITDA Gth (%) (8.0) 7.0 2.8 7.3 7.0
Opg Profit Gth (%) (17.0) 4.0 (2.7) 4.2 5.9
Net Profit Gth (Pre-ex) (%) (14.3) 8.1 2.8 9.1 8.4
Margins & Ratio
Gross Margins (%) 29.5 30.2 30.4 30.0 30.0
Opg Profit Margin (%) 3.9 4.0 3.9 4.0 4.2
Net Profit Margin (%) 3.8 4.2 3.6 4.5 4.8
ROAE (%) 30.2 32.6 25.3 28.7 27.3
ROA (%) 9.3 9.4 7.6 9.2 9.5
ROCE (%) 17.1 14.9 12.7 12.4 12.2
Div Payout Ratio (%) 63.8 60.5 70.4 54.7 50.5
Net Interest Cover (x) 32.0 20.8 16.7 17.8 15.8
Source: Company, DBS Bank

Page 45
 Company Guide
Dairy Farm

Quarterly / Interim Income Statement (US$m)

FY Dec 2H2015 1H2016 2H2016 1H2017 2H2017

Revenue 5,544 5,562 5,639 5,505 5,783

Cost of Goods Sold (3,891) (3,914) (3,901) (3,850) (4,007)
Gross Profit 1,653 1,648 1,737 1,656 1,777
Other Oper. (Exp)/Inc (1,419) (1,451) (1,482) (1,456) (1,537)
Operating Profit 235 197 256 200 240
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 53.3 46.5 71.7 61.3 82.9
Net Interest (Exp)/Inc (8.0) (9.0) (12.8) (12.4) (13.9)
Exceptional Gain/(Loss) (4.2) 0.0 6.20 0.0 (72.3)
Pre-tax Profit 276 234 321 249 237
Tax (45.0) (37.4) (47.7) (40.0) (52.9)
Minority Interest 1.50 2.30 (3.4) 2.40 8.20
Net Profit 232 199 270 211 192
Net profit bef Except. 237 199 264 211 264
EBITDA 288 243 327 261 323

Growth
Revenue Gth (%) (0.9) 0.3 1.4 (2.4) 5.1
EBITDA Gth (%) 24.0 (15.5) 34.5 (20.2) 23.6
Opg Profit Gth (%) 17.0 (16.1) 29.9 (21.7) 20.0
Net Profit Gth (%) 21.3 (14.2) 35.3 (21.6) (9.1)
Margins
Gross Margins (%) 29.8 29.6 30.8 30.1 30.7
Opg Profit Margins (%) 4.2 3.5 4.5 3.6 4.2
Net Profit Margins (%) 4.2 3.6 4.8 3.8 3.3

Balance Sheet (US$m)

FY Dec 2015A 2016A 2017A 2018F 2019F

Net Fixed Assets 1,141 1,100 1,184 1,179 1,171

Invts in Associates & JVs 1,292 1,462 1,601 1,952 2,159
Other LT Assets 948 951 1,011 989 967
Cash & ST Invts 259 324 332 375 363
Inventory 937 983 950 1,009 1,009
Debtors 234 291 351 298 352
Other Current Assets 11.2 19.4 38.3 38.3 38.3
Total Assets 4,821 5,129 5,467 5,840 6,060

ST Debt 730 370 413 413 413

Creditor 2,355 2,328 2,470 2,413 2,556
Other Current Liab 66.6 73.4 130 163 172
LT Debt 10.6 595 522 696 500
Other LT Liabilities 204 184 177 177 177
Shareholder’s Equity 1,376 1,505 1,690 1,925 2,204
Minority Interests 79.4 74.1 65.7 52.4 37.9
Total Cap. & Liab. 4,821 5,129 5,467 5,840 6,060 Assume 6.1% stake in RRHI
at US$174m is fully funded
Non-Cash Wkg. Capital (1,239) (1,108) (1,261) (1,231) (1,328) by debt
Net Cash/(Debt) (482) (641) (602) (734) (550)
Debtors Turn (avg days) 8.0 8.5 10.4 10.3 10.1
Creditors Turn (avg days) 113.9 112.4 114.7 114.5 114.1
Inventory Turn (avg days) 46.5 46.1 46.2 46.0 46.3
Asset Turnover (x) 2.4 2.3 2.1 2.0 2.0
Current Ratio (x) 0.5 0.6 0.6 0.6 0.6
Quick Ratio (x) 0.2 0.2 0.2 0.2 0.2
Net Debt/Equity (X) 0.3 0.4 0.3 0.4 0.2
Net Debt/Equity ex MI (X) 0.4 0.4 0.4 0.4 0.2
Capex to Debt (%) 34.9 20.6 23.4 18.1 22.3
Z-Score (X) 4.6 4.6 4.3 4.4 4.3
Source: Company, DBS Bank

Page 46
Company Guide
Dairy Farm

Cash Flow Statement (US$m)

FY Dec 2015A 2016A 2017A 2018F 2019F

Pre-Tax Profit 503 555 486 610 662

Dep. & Amort. 212 213 221 228 232
Tax Paid (90.2) (95.3) (84.3) (71.6) (105)
Assoc. & JV Inc/(loss) (85.0) (118) (144) (177) (206)
Chg in Wkg.Cap. 73.0 (134) 140 (62.5) 88.4
Other Operating CF 87.5 122 53.5 0.0 0.0
Net Operating CF 700 543 671 527 671
Capital Exp.(net) (259) (199) (218) (200) (203)
Other Invts.(net) 0.0 0.0 0.0 0.0 0.0
Invts in Assoc. & JV (918) (197) (5.8) (174) 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF (189) (32.1) (56.4) 0.0 0.0
Net Investing CF (1,365) (428) (281) (374) (203) Investment in RRHI
Div Paid (311) (270) (284) (284) (284)
Chg in Gross Debt 573 238 (40.9) 174 (196)
Capital Issues 0.0 0.0 0.0 0.0 0.0
Other Financing CF 15.7 (9.7) (63.0) 0.0 0.0
Net Financing CF 278 (42.5) (388) (110) (480)
Currency Adjustments (12.1) (6.5) 9.10 0.0 0.0 Assume 6.1% stake in
Chg in Cash (400) 65.9 11.9 42.2 (11.9) RRHI at US$174m is
Opg CFPS (US cts.) 46.4 50.0 39.3 43.6 43.1 fully funded by debt
Free CFPS (US cts.) 32.6 25.4 33.5 24.1 34.6
Source: Company, DBS Bank

Target Price & Ratings History

9.55 US$
12- mt h
Dat e of Closing
S.No. T arget Rat ing
Report Pric e
Pric e
9.05
1: 18 J ul 17 8.16 9.96 BUY
2: 08 Aug 17 7.81 9.89 BUY
3: 12 Mar 18 8.09 9.54 BUY
8.55

8.05
1 2
3

7.55

7.05
Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank

Analyst: Alfie YEO
Andy SIM, CFA

Page 47
 Company Guide
Dairy Farm

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends

Completed Date: 28 Mar 2018 08:17:16 (SGT)

Dissemination Date: 28 Mar 2018 08:25:52 (SGT)

Sources for all charts and tables are DBS Bank unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated
corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii)
redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other
factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or
warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific
investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees
only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial
advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)
arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not
to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons
associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to
update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.

Page 48
 Company Guide
Dairy Farm

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage
in market-making.

ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate 1 does not serve as an officer of the
issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real
estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment
banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the
DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates do not
have a proprietary position in the securities recommended in this report as of 28 Feb 2018.
2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research
Report.

Compensation for investment banking services:

3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a
manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further
information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document
should contact DBSVUSA exclusively.

Disclosure of previous investment recommendation produced:

4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other
investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1
An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of
which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person
accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2
Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a
new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term
does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new
listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Page 49
 Singapore
Flash Note
Refer to important disclosures at the end of this report

DBS Group Research . Equity 23 Feb 2018

Sheng Siong Group (SSG SP) : BUY

Mkt. Cap: US$1,054m I 3m Avg. Daily Val: US$1.1m
Last Traded Price ( 22 Feb 2018): S$0.925
Price Target 12-mth: S$1.20 (30% upside) (Prev S$1.19)

Analyst
Alfie YEO +65 6682 3717; alfieyeo@dbs.com
Andy SIM, CFA +65 6682 3718; andysim@dbs.com

New outlets to drive growth

• FY17F earrings in line, driven by better gross margins What’s New
and sales efficiencies FY17 in line. Revenue and earnings of S$S$830m (+4.2% y-
• Final dividend of 1.75 Scts declared o-y) and S$69.5m (+10.9% y-o-y) for FY17 were in line with
our forecast. Revenue growth was driven by new stores and
• Growth to be driven by new outlets, 9 new stores and
selling area added between 1Q17 to 1Q18 improved efficiency based on sales per square feet, offset by
closure of the Verge and Woodlands stores. Same store sales
• Maintain BUY, TP S$1.20 based on 25x FY18F PE
growth (SSSG) grew by 2.1%. Gross margin was 26.2%
(+0.5ppt) on lower cost of goods from better pricing,
supplier rebates and volume discounts. EBIT as a result was
10% y-o-y higher at S$71.5m. Opex grew in line with
Forecasts and Valuation revenue.
FY Dec (S$m) 2016A 2017A 2018F 2019F
Revenue 797 830 845 880
EBITDA 80.0 86.3 90.9 100 More outlets to drive growth going forward. Sheng Siong
Pre-tax Profit 76.2 82.1 87.1 93.4 cranked up a >10% core earnings growth in FY17 which we
Net Profit 62.7 69.5 72.2 77.5
Net Pft (Pre Ex.) 62.7 69.5 72.2 77.5 believe is remarkable despite 1) the closure of two 40,000
Net Pft Gth (Pre-ex) (%) 10.4 10.9 3.8 7.3 sqft stores at Woodlands and the Verge; and 2) the entry of
EPS (S cts) 4.17 4.62 4.80 5.15
EPS Pre Ex. (S cts) 4.17 4.62 4.80 5.15 Amazon Prime in Singapore. While floor area has reduced by
EPS Gth Pre Ex (%) 10 11 4 7 46,000 sqft (-10%) in FY17, better sales efficiencies and
Diluted EPS (S cts) 4.17 4.62 4.80 5.15
Net DPS (S cts) 3.75 3.30 3.36 3.61 margins made up for the loss of selling area. It added 8 new
BV Per Share (S cts) 16.8 18.0 19.4 21.0 stores and expanded selling area in another store in 2017
PE (X) 22.2 20.0 19.3 18.0
PE Pre Ex. (X) 22.2 20.0 19.3 18.0 and will add more than 30,000 sqft of space in 1Q18 at
P/Cash Flow (X) 17.8 17.7 13.3 14.4 Canberra, Anchorvale, Fernvale, and ITE Ang Mo Kio.
EV/EBITDA (X) 16.6 15.3 14.2 12.6
Net Div Yield (%) 4.1 3.6 3.6 3.9 Pipeline for planned HDB supermarkets in the next 6 months
P/Book Value (X) 5.5 5.1 4.8 4.4 remains robust with 11 supermarket locations already
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 25.3 26.6 25.6 25.5 earmarked for tender. Sheng Siong’s China store in
Source of all data on this page: Company, DBS Bank, Bloomberg Kunming also finally opened in November 2017.
Finance L.P. Contribution is expected to be minimal for now.

Maintain BUY, TP S$1.20 based on 25x FY18F PE. There is

no significant change to our earnings projections since FY17
and 4Q17 earnings were in line with our expectations. Our
TP based on 25x FY18F PE is now S$1.20.

ed:JS / sa: SM, PY, CS Page 50

Flash Note

Quarterly / Interim Income Statement (S$m)

FY Dec 4Q2016 3Q2017 4Q2017 % chg yoy % chg qoq

Revenue 197 211 200 1.7 (5.0)

Cost of Goods Sold (145) (156) (145) 0.0 (7.2)
Gross Profit 51.8 54.5 55.1 6.3 1.2
Other Oper. (Exp)/Inc (35.3) (35.5) (38.6) 9.3 8.8
Operating Profit 16.5 19.0 16.5 0.0 (13.0)
Other Non Opg (Exp)/Inc 2.37 2.03 3.99 68.4 96.7
Associates & JV Inc 0.0 0.0 0.0 - -
Net Interest (Exp)/Inc 0.01 0.10 0.08 nm (20.0)
Exceptional Gain/(Loss) 0.0 0.0 0.0 - -
Pre-tax Profit 18.9 21.1 20.6 8.9 (2.5)
Tax (3.5) (1.5) (3.9) 12.7 159.5
Minority Interest 0.0 0.0 0.0 - -
Net Profit 15.4 19.6 16.7 8.1 (15.0)
Net profit bef Except. 15.4 19.6 16.7 8.1 (15.0)
EBITDA 22.6 24.7 24.3 7.5 (1.7)
Margins (%)
Gross Margins 26.3 25.8 27.5
Opg Profit Margins 8.4 9.0 8.3
Net Profit Margins 7.8 9.3 8.3

Source of all data: Company, DBS Bank

Target Price & Ratings History

Source: DBS Bank

Analyst: Alfie YEO
Andy SIM, CFA

Page 51
 Flash Note

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends

Completed Date: 23 Feb 2018 06:46:05 (SGT)

Dissemination Date: 23 Feb 2018 08:33:12 (SGT)

Sources for all charts and tables are DBS Bank unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated
corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii)
redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other
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warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
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Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to
update the information in this report.

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The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
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which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
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UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
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Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
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commodity referred to in this report.

Page 52
Flash Note

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage
in market-making.

ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate 1 does not serve as an officer of the
issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real
estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment
banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the
DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates have a
proprietary position in Sheng Siong Group recommended in this report as of 31 Jan 2018.
2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research
Report.

Compensation for investment banking services:

3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a
manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further
information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document
should contact DBSVUSA exclusively.
Disclosure of previous investment recommendation produced:
4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other
investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1
An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of
which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person
accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2
Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a
new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term
does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new
listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Page 53
 Singapore Company Guide
Sheng Siong Group
Version 10 | Bloomberg: SSG SP | Reuters: SHEN.SI Refer to important disclosures at the end of this report

DBS Group Research . Equity 28 Jul 2017

BUY CONTINUES DELIVERING

Last Traded Price ( 27 Jul 2017): S$0.95 (STI : 3,354.71)
Price Target 12-mth: S$1.20 (26% upside) Maintain BUY TP S$ 1.20, margin expansion to drive earnings
growth. We remain positive on Sheng Siong as we see growth
Analyst led by improving margins. We believe expansion of its
Alfie YEO +65 6682 3717 alfieyeo@dbs.com distribution centre will continue and the company will sustain
Andy SIM CFA +65 6682 3718 andysim@dbs.com
gross margins going forward. Margins remain on the uptrend –
What’s New supported by the increase in direct sourcing, bulk handling, and
fresh mix – contributing to earnings growth. Stock is trading
 2Q17 earnings in line, gross margin expansion
attractively at 19.8x FY18F PE, compared to its historical average
continues
of 23x since listing. Yield is attractive at 4.5%.
 DPS of 1.55 Scts declared
 Amazon’s entry not a serious threat for now Where we differ. We do not think Amazon’s entry will pose a
serious threat to Sheng Siong for now for six reasons. The
 Maintain BUY, TP S$1.20 online pie remains small; Sheng Siong’s target customers are
not the millennials who are open to online grocery shopping;
Amazon’s warehouse is relatively small; Amazon will pose a
Price Relative
S$
more direct threat to Redmart; its pricing is not exactly cheap to
Relative Index
1.2
215 attract offline buyers online; and the online market will take
1.1

time to gain share from brick-and-mortar stores rather than

195
1.0
175

ramp up rapidly.
0.9 155
0.8 135
0.7 115

0.6 95

0.5
Jul-13 Jul-14 Jul-15 Jul-16
75
Jul-17 Potential catalyst. We believe that Sheng Siong, with its decent
Sheng Siong Group (LHS) Relative STI (RHS)
store network and logistics chain, could possibly be a takeover
target by online players eventually. Online players such as
Forecasts and Valuation Alibaba’s 盒马鲜生 and Amazon (Wholefoods) are taking the
FY Dec (S$ m) 2016A 2017F 2018F 2019F
online-to-offline route, operating physical stores.
Revenue 797 807 828 878
EBITDA 80.0 85.4 92.2 101
Pre-tax Profit 76.2 80.4 86.8 92.2 Valuation:
Net Profit 62.7 66.8 72.0 76.5 Our target price for Sheng Siong is S$ 1.20, based on 25x
Net Pft (Pre Ex.) 62.7 66.8 72.0 76.5 FY18F PE. The valuation is pegged at +1SD of its historical
Net Pft Gth (Pre-ex) (%) 10.4 6.5 7.8 6.2
mean since listing and below regional peers' average of 30x
EPS (S cts) 4.17 4.44 4.79 5.08
EPS Pre Ex. (S cts) 4.17 4.44 4.79 5.08 PE.
EPS Gth Pre Ex (%) 10 6 8 6
Diluted EPS (S cts) 4.17 4.44 4.79 5.08 Key Risks to Our View:
Net DPS (S cts) 3.75 3.99 4.31 4.57
Store openings, price competition. Revenue growth will be led
BV Per Share (S cts) 16.8 17.2 17.7 18.2
PE (X) 22.8 21.4 19.8 18.7 by new store openings. Excessive discounts and promotions in
PE Pre Ex. (X) 22.8 21.4 19.8 18.7 the market by competitors will ultimately result in lower
P/Cash Flow (X) 18.3 20.0 13.2 14.7 margins.
EV/EBITDA (X) 17.1 16.1 14.7 13.3
Net Div Yield (%) 3.9 4.2 4.5 4.8
At A Glance
P/Book Value (X) 5.7 5.5 5.4 5.2
Net Debt/Equity (X) CASH CASH CASH CASH Issued Capital (m shrs) 1,504
ROAE (%) 25.3 26.1 27.4 28.3 Mkt. Cap (S$m/US$m) 1,428 / 1,052
Major Shareholders (%)
Earnings Rev (%): (3) 0 0
Consensus EPS (S cts): 4.50 4.70 4.90 SS Holdings 29.85
Other Broker Recs: B: 6 S: 1 H: 2 Lim Family 33.99
Source of all data on this page: Company, DBS Bank, Bloomberg Free Float (%) 36.16
Finance L.P 3m Avg. Daily Val (US$m) 1.5
ICB Industry : Consumer Services / Food & Drug Retailers

ASIAN INSIGHTS VICKERSPage

SECURITIES
54
ed: JLC / sa:JC, YM, PY
Company Guide
Sheng Siong Group
WHAT’S NEW
2Q17 results
2Q17 in line: Earnings of S$$16m (+6% y-o-y) were in line
with our expectations. Revenue of S$202m (+7% y-o-y) was
driven by 0.9% SSSG and 5.2% from new stores. Better
consumer sentiment was offset by footfall decline at stores
affected by the slowdown in the oil and gas industry,
Woodlands store, as well as Tampines renovation. An interim
DPS of 1.55 Scts was declared, amounting to 70% payout in
1H17.
Gross margins all-time high: Gross margins hit an all-time
high of 26.6% due to lower input costs, better supplier
rebates, and better fresh food mix.
Record high operating profit margin at 8.9%. Operating
profit was S$17.9m (+11.8% y-o-y), and flat Q-o-Q.
Operating expenses increased by (+6.8% y-o-y), led by admin
expenses which grew 6% to S$33.6m. Operating profit
margin was at a record high as gross margins expanded while
operating expenses were kept at 17.7% of sales.
Other income fell. Other income dropped to S$1.8m and this
was due to 1) lower rental income as the property floor area
of its Tampines site was increased to 25,000 sqft; and 2) a
decline in government grants on lower wage credits as well
as temporary and special employment schemes.
Expect gross margins to improve further. As expected, Sheng
Siong continued in its margin improvement with record gross
and operating margins. We have held the view that margin
expansion will continue on the back of better input prices as
it expands its distribution centre going forward. Completion
of new warehouse space going forward will drive the growth
of gross margins further with bulk and volume discounts.
Correlation between the stock price and gross margin is
strong at 0.9. The Verge store has closed but the Woodlands
store’s lease has been extended to October 2017. Two new
stores will open in 3Q17 - the 4,300-sqft Fajar Road store and
ASIAN INSIGHTS
the 12,000-sqft Woodlands St 12 store. The Kunming store is
expected to open in September 2017.
Amazon opens this week, not a real threat for now. Amazon
has started operations in Singapore with Amazon Prime Now,
sending jitters through Sheng Siong’s stock investors. The
entry of Amazon should not affect Sheng Siong for now as
1) Singapore’s online grocery retail market remains small at
<2% (S$96m) of modern grocery retail sales of S$6b;
2) Amazon’s scale is relatively small; its 100,000-sqft
warehouse is comparable to Redmart’s but far smaller than
DFI’s 260,000-sqft, SSG’s 500,000-sqft and NTUC Fairprice’s
730,000-sqft warehouses;
3) Amazon would pose a direct threat to Redmart as they
both target the same customers in the online grocery space;
4) we do not see the market size swelling just because
Amazon is coming in, as the growth of the grocery market is
still largely based on population size and inflation, which
requires a real shift from store to online for Sheng Siong to
be affected;
5) our initial price comparison showed that Amazon’s pricing
is not exactly cheap at the moment, making it difficult to take
share off the physical stores at current prices;
6) Sheng Siong’s target customers are largely not the tech-
savvy millennials who are open to buying from online
channels.
Maintain BUY, S$1.20 TP. Our forecasts remain largely
unchanged. We maintain BUY with S$1.20 TP, based on 25x
FY18F PE. Even though we do not see fundamentals playing
out immediately on Amazon’s entry, we are mindful that the
market may be cautious on long-term implications to Sheng
Siong and hence would like to highlight that negativity could
weigh on the stock over the short term, based on market
sentiment.
VICKERS SECURITIES
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 Company Guide
Sheng Siong Group

Quarterly / Interim Income Statement (S$m)

FY Dec 2Q2016 1Q2017 2Q2017 % chg yoy % chg qoq

Revenue 189 217 202 6.8 (7.2)

Cost of Goods Sold (139) (163) (148) 6.2 (9.1)
Gross Profit 49.4 54.3 53.5 8.4 (1.5)
Other Oper. (Exp)/Inc (33.3) (36.3) (35.6) 6.8 (1.9)
Operating Profit 16.0 18.0 17.9 11.8 (0.6)
Other Non Opg (Exp)/Inc 2.14 2.53 1.80 (16.0) (28.7)
Associates & JV Inc 0.0 0.0 0.0 - -
Net Interest (Exp)/Inc 0.20 0.02 0.03 (83.8) 37.5
Exceptional Gain/(Loss) 0.0 0.0 0.0 - -
Pre-tax Profit 18.4 20.6 19.8 7.5 (4.0)
Tax (3.2) (3.5) (3.7) 14.1 5.9
Minority Interest 0.0 0.01 0.0 - -
Net Profit 15.2 17.1 16.1 6.1 (6.1)
Net profit bef Except. 15.2 17.1 16.1 6.1 (6.1)
EBITDA 22.1 24.3 23.4 6.0 (3.6)
Margins (%)
Gross Margins 26.1 25.0 26.6
Opg Profit Margins 8.5 8.3 8.9
Net Profit Margins 8.0 7.9 8.0

Source of all data: Company, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES

Page 56
Company Guide
Sheng Siong Group

Rev per sqft

CRITICAL DATA POINTS TO WATCH
1892 1848 1850
1911.1 1816 1808

Critical Factors 1638.1

Store expansion. Sheng Siong currently operates 43 stores 1365.1

(including at Loyang Point which is under renovation). 1092.0

Compared to the other local operators, it has scope to expand 819.0

its store network, particularly in areas such as Serangoon, 546.0

Hougang and Sengkang, where it has a small presence. 273.0

Management targets to ultimately operate 50 stores island- 0.0
wide. In the past six years, 0-8 stores were opened annually, 2015A 2016A 2017F 2018F 2019F

largely a function of supply of HDB shop space available for Operation Area (sqft)
tender and Sheng Siong’s ability to win the tenders. Sheng
525977.3 515664
Siong mainly operates in HDB estates. 450000 455664
485664
431000
420781.8
Gross margin expansion through better sales mix. The gross
315586.4
margin for fresh products is estimated to be >30%, and close to
20% for non-fresh grocery items. Sheng Siong’s product mix 210390.9

stands at approximately 40% fresh vs 60% non-fresh. We see

105195.5
headroom for its sales mix to improve to 50% for each as it
skews its store offerings towards fresh products. 0.0
2015A 2016A 2017F 2018F 2019F

Mandai Distribution Centre to expand. The Mandai Distribution Number of stores

Centre allows Sheng Siong to perform direct sourcing and bulk 51
52.02
handling. This effectively drives down input costs, resulting in 45
48
42
cost savings and better margins. We estimate that the facility is 41.62 39

currently running at only 90% of capacity and a new

31.21
warehouse adjacent to the current one is expected to start
construction in FY17F. It will be able to secure more suppliers 20.81

and products to trade through the distribution centre to

10.40
effectively enjoy more bulk handling and higher supplier
rebates. Margins are expected to trend up as utilisation 0.00

increases towards full capacity. 2015A 2016A 2017F 2018F 2019F

SSSG (%)
Margin expansion through direct sourcing. Sheng Siong is 6.0%

increasingly sourcing directly from suppliers such as farms 5.0%

instead of from middlemen. The company has the resources to 4.0% Weak demand
conditions,
place large orders, which is welcomed by producers. 3.0%
Affected by
SG50
store
renovations
promotion and
2.0% discounting
Generating more same-store-sales growth (SSSG) to increase 1.0%
revenue. Sheng Siong has been able to maintain positive SSSG 0.0%
since 4Q13 (excluding 4Q15, 1Q16) through longer operating -1.0% 3Q & 4Q would be
negativ e 1.2% &
hours and renovation of older stores, offering the correct -2.0%
2.7% if include
Loy ang store
products and effective marketing. SSSG has been affected partly renov ation
-3.0%
by the renovation of the Loyang store from 3Q16 to 1Q17. The 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17

SSSG would have been positive had the Loyang store performed
Gross Margins (%)
similarly to the previous year and was not shut down for
27.0
renovation. Maintaining positive SSSG will support earnings 26.5
growth. 26.0
25.5
Kunming store in China to open in 2017. Its first store in 25.0
Kunming (40,000 sqft) is expected to commence operations in 24.5

2017. Downside for the JV is limited to its US$6m paid-up 24.0

capital, which is sufficient to open 2-3 new stores. 23.5

23.0
22.5
22.0
1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17

Source: Company, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES

Page 57
 Company Guide
Sheng Siong Group

Appendix 1: A look at Company's listed history – what drives its share price?

Correlation of stock price to gross margin improvement is strong at 0.9

S$ Gross margins (RHS) Share price (LHS) %

1.20 30
Gross margins
expanded from
1.00 20.8% to 23.2% 28

0.80 25

0.60 Gross margins 23

at all time high
of c.26%

0.40 Gross margins 20

expanded from
23.8% to 25.2%

0.20 18
Feb-12

Feb-13

Feb-14

Feb-15

Feb-16

Feb-17
Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Source: DBS Bank Aug-16

ASIAN INSIGHTS VICKERS SECURITIES

Page 58
Company Guide
Sheng Siong Group

Leverage & Asset Turnover (x)

Balance Sheet: 0.05 2.2
0.05
0.04
Net cash of over S$70m or c.4 Scts per share. The excess cash 0.04
2.2

allows for strategic store acquisitions if suitable real estate arises 0.03

for it to expand its store presence in the future. The business 0.03 2.1

generates positive working capital. Inventory is purchased on 0.02

0.02
credit, and quickly turned into cash. Over the past seven years, 0.01
2.1

the business has generated between S$20-75m of operating 0.01

cashflow each year. Dividend payout is attractive at 90%. We 0.00

2015A 2016A 2017F 2018F 2019F
2.0

expect this to be maintained as long as there is no significant Gross Debt to Equity (LHS) Asset Turnover (RHS)

requirement for cash funding.

Capital Expenditure
S$m
Share Price Drivers: 100.0
90.0
80.0

Strong earnings growth performance. Sheng Siong’s financial 70.0

60.0
performance has consistently met our expectations, delivering 50.0

earnings growth (5-year CAGR of 18.1% since FY11) through a 40.0

30.0
combination of margin expansion, store growth and SSSG. We 20.0

believe continued delivery of consistent performance and profit 10.0

0.0
growth will support a strong share price. 2015A 2016A 2017F 2018F 2019F

Capital Expenditure (-)

China to be a wildcard. We believe Sheng Siong’s JV in China is ROE (%)

a wildcard. If operations prove to be successful, in time to
come, China can provide an alternate source of growth. There is 25.0%

scope for the number of stores to increase should Sheng Siong’s 20.0%
business model work. Downside remains limited to US$6m for
now should the JV fail. 15.0%

10.0%
Key Risks:
5.0%

Revenue growth limited by store openings. Store expansion in 0.0%

2015A 2016A 2017F 2018F 2019F
Singapore is largely dependent on the supply of new
supermarket retail space released by HDB and its ability to Forward PE Band (x)
secure the tenders. (x)
27.4

Excessive discounts and promotions may erode margins. 25.4

Heavier discounts and promotions vis-a-vis competitors would 23.4

+2sd: 23.8x

drive sales revenue, but this could be gained at the expense of 21.4
+1sd: 22.2x

margins. Avg: 20.5x
19.4
‐1sd: 18.8x

Company Background 17.4 ‐2sd: 17.2x

15.4
Jul-13 Jul-14 Jul-15 Jul-16
Sheng Siong is the third-largest supermarket operator in
Singapore, behind NTUC Fairprice and Dairy Farm PB Band (x)
International. 7.3
(x)

6.8

6.3 +2sd: 6.41x

5.8 +1sd: 5.88x

5.3 Avg: 5.36x

4.8 ‐1sd: 4.83x

4.3 ‐2sd: 4.31x

3.8
Jul-13 Jul-14 Jul-15 Jul-16

Source: Company, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES

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 Company Guide
Sheng Siong Group

Key Assumptions
FY Dec 2015A 2016A 2017F 2018F 2019F
Rev per sqft 1,892 1,848 1,850 1,816 1,808
Operation Area (sqft) 431,000 450,000 455,664 485,664 515,664
Number of stores 39.0 42.0 45.0 48.0 51.0

Segmental Breakdown
FY Dec 2015A 2016A 2017F 2018F 2019F
Revenues (S$m)
Singapore 764 797 807 828 878

Total 764 797 807 828 878

Operating profit (S$m)
Singapore 57.2 65.1 70.3 76.7 84.3

Total 57.2 65.1 70.3 76.7 84.3

Operating profit Margins
Singapore 7.5 8.2 8.7 9.3 9.6

Total 7.5 8.2 8.7 9.3 9.6

Income Statement (S$m)

FY Dec 2015A 2016A 2017F 2018F 2019F
Revenue 764 797 807 828 878
Cost of Goods Sold (576) (592) (597) (610) (645)
Gross Profit 189 205 210 218 233
Other Opng (Exp)/Inc (132) (140) (140) (141) (148)
Operating Profit 57.2 65.1 70.3 76.7 84.3
Other Non Opg (Exp)/Inc 9.26 10.5 9.53 9.60 7.20
Associates & JV Inc 0.0 0.0 0.0 0.0 0.0
Net Interest (Exp)/Inc 1.22 0.57 0.64 0.58 0.78
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 67.7 76.2 80.4 86.8 92.2
Tax (10.9) (13.5) (13.7) (14.8) (15.7)
Minority Interest 0.0 0.0 0.0 (0.1) (0.1)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Profit 56.8 62.7 66.8 72.0 76.5
Net Profit before Except. 56.8 62.7 66.8 72.0 76.5
EBITDA 70.6 80.0 85.4 92.2 101
Growth
Revenue Gth (%) 5.3 4.2 1.3 2.5 6.1
EBITDA Gth (%) 12.1 13.3 6.7 7.9 9.3
Opg Profit Gth (%) 9.7 13.7 8.0 9.1 9.9
Net Profit Gth (Pre-ex) (%) 20.8 10.4 6.5 7.8 6.2
Margins & Ratio
Gross Margins (%) 24.7 25.7 26.0 26.3 26.5
Opg Profit Margin (%) 7.5 8.2 8.7 9.3 9.6
Net Profit Margin (%) 7.4 7.9 8.3 8.7 8.7
ROAE (%) 23.6 25.3 26.1 27.4 28.3
ROA (%) 15.9 16.6 17.3 18.0 18.1
ROCE (%) 19.8 21.3 22.4 23.8 25.4
Div Payout Ratio (%) 92.7 89.9 89.9 89.9 89.9
Net Interest Cover (x) NM NM NM NM NM
Source: Company, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES

Page 60
Company Guide
Sheng Siong Group

Quarterly / Interim Income Statement (S$m)

FY Dec 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017

Revenue 189 202 197 217 202

Cost of Goods Sold (139) (150) (145) (163) (148)
Gross Profit 49.4 52.5 51.8 54.3 53.5
Other Oper. (Exp)/Inc (33.3) (35.6) (35.3) (36.3) (35.6)
Operating Profit 16.0 16.9 16.5 18.0 17.9
Other Non Opg (Exp)/Inc 2.14 2.21 2.37 2.53 1.80
Associates & JV Inc 0.0 0.0 0.0 0.0 0.0
Net Interest (Exp)/Inc 0.20 0.02 0.01 0.02 0.03
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 18.4 19.1 18.9 20.6 19.8
Tax (3.2) (3.4) (3.5) (3.5) (3.7)
Minority Interest 0.0 0.0 0.0 0.01 0.0
Net Profit 15.2 15.7 15.4 17.1 16.1
Net profit bef Except. 15.2 15.7 15.4 17.1 16.1
EBITDA 22.1 22.8 22.6 24.3 23.4

Growth
Revenue Gth (%) (9.5) 7.2 (2.7) 10.2 (7.2)
EBITDA Gth (%) (4.0) 3.3 (1.1) 7.7 (3.6)
Opg Profit Gth (%) 2.5 5.2 (1.9) 9.0 (0.6)
Net Profit Gth (Pre-ex) (%) (7.6) 3.3 (1.5) 11.0 (6.1)
Margins
Gross Margins (%) 26.1 25.9 26.3 25.0 26.6
Opg Profit Margins (%) 8.5 8.3 8.4 8.3 8.9
Net Profit Margins (%) 8.0 7.7 7.8 7.9 8.0

Balance Sheet (S$m)

FY Dec 2015A 2016A 2017F 2018F 2019F

Net Fixed Assets 178 252 254 262 256

Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0
Other LT Assets 0.0 0.0 0.0 0.0 0.0
Cash & ST Invts 126 63.5 57.5 77.5 95.6
Inventory 52.5 61.9 61.3 62.6 66.2
Debtors 11.8 10.4 12.1 11.0 11.6
Other Current Assets 0.0 0.0 0.0 0.0 0.0
Total Assets 368 388 385 413 430

ST Debt 0.0 0.0 0.0 0.0 0.0

Creditor 109 118 108 127 135
Other Current Liab 12.6 13.0 13.7 14.8 15.7
LT Debt 0.0 0.0 0.0 0.0 0.0
Other LT Liabilities 2.24 2.45 2.45 2.45 2.45
Shareholder’s Equity 244 252 259 266 274
Minority Interests 0.0 2.79 2.79 2.89 2.99
Total Cap. & Liab. 368 388 385 413 430

Non-Cash Wkg. Capital (57.1) (58.3) (47.9) (68.5) (72.9)

Net Cash/(Debt) 126 63.5 57.5 77.5 95.6
Debtors Turn (avg days) 5.4 5.1 5.1 5.1 4.7
Creditors Turn (avg days) 66.4 71.5 70.6 72.1 76.1
Inventory Turn (avg days) 31.0 36.2 38.6 38.0 37.4
Asset Turnover (x) 2.1 2.1 2.1 2.1 2.1
Current Ratio (x) 1.6 1.0 1.1 1.1 1.2
Quick Ratio (x) 1.1 0.6 0.6 0.6 0.7
Net Debt/Equity (X) CASH CASH CASH CASH CASH
Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH
Capex to Debt (%) N/A N/A N/A N/A N/A
Z-Score (X) 10.0 9.3 9.9 8.8 8.8
Source: Company, DBS Bank

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Sheng Siong Group

Cash Flow Statement (S$m)

FY Dec 2015A 2016A 2017F 2018F 2019F

Pre-Tax Profit 67.7 76.2 80.4 86.8 92.2

Dep. & Amort. 13.4 14.9 15.1 15.5 16.4
Tax Paid (10.7) (12.6) (13.0) (13.7) (14.8)
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. 2.54 0.77 (11.0) 19.5 3.50
Other Operating CF 0.52 (1.2) 0.0 0.0 0.0
Net Operating CF 73.5 78.1 71.5 108 97.4
Capital Exp.(net) (30.4) (89.3) (17.5) (23.5) (10.5)
Other Invts.(net) 0.0 0.0 0.0 0.0 0.0
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF 1.22 0.57 0.0 0.0 0.0
Net Investing CF (29.2) (88.7) (17.5) (23.5) (10.5)
Div Paid (48.9) (54.8) (60.0) (64.7) (68.7)
Chg in Gross Debt 0.0 0.0 0.0 0.0 0.0
Capital Issues 0.0 0.0 0.0 0.0 0.0
Other Financing CF 0.0 2.59 0.0 0.0 0.0
Net Financing CF (48.9) (52.2) (60.0) (64.7) (68.7)
Currency Adjustments 0.04 0.40 0.0 0.0 0.0
Chg in Cash (4.5) (62.4) (6.0) 20.0 18.2
Opg CFPS (S cts) 4.72 5.14 5.49 5.90 6.25
Free CFPS (S cts) 2.86 (0.7) 3.59 5.63 5.78
Source: Company, DBS Bank

Target Price & Ratings History

1.16
S$
12- mt h
Dat e of Closing
S.No. T arget Rat ing
1.11 Report Pric e
Pric e
4 6
1: 27 J ul 16 0.99 1.09 BUY
1.06 2 35 2: 29 Aug 16 1.05 1.09 BUY
3: 26 Sep 16 1.08 1.09 BUY
12 4: 29 Sep 16 1.07 1.18 BUY
1.01 14
10 5: 04 Oct 16 1.08 1.18 BUY
6: 27 Oct 16 1.07 1.19 BUY
0.96 1 13
8 9 11 7: 24 F eb 17 0.96 1.13 BUY
7 8: 17 Mar 17 0.94 1.13 BUY
9: 10 Apr 17 0.98 1.13 BUY
0.91
10: 02 May 17 0.98 1.14 BUY
11: 20 Jun 17 0.98 1.20 BUY
0.86 12: 03 Jul 17 1.00 1.20 BUY
Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 13: 10 Jul 17 0.99 1.20 BUY
14: 18 Jul 17 0.99 1.20 BUY
Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank

Analyst: Alfie YEO
Andy SIM CFA

ASIAN INSIGHTS VICKERS SECURITIES

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Company Guide
Sheng Siong Group

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends

Completed Date: 28 Jul 2017 08:58:33 (SGT)

Dissemination Date: 28 Jul 2017 09:16:22 (SGT)

Sources for all charts and tables are DBS Bank unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated
corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii)
redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other
factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or
warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific
investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees
only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial
advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)
arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not
to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons
associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to
update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.

ASIAN INSIGHTS VICKERS SECURITIES

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 Company Guide
Sheng Siong Group

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage
in market-making.

ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the
issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real
estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
2
his associate does not have financial interests in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment
banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the
DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates have a
proprietary position in Sheng Siong Group recommended in this report as of 30 June 2017.
2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research
Report.

Compensation for investment banking services:

3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a
manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further
information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document
should contact DBSVUSA exclusively.
Disclosure of previous investment recommendation produced:
4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other
investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1
An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of
which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person
accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2
Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a
new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term
does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new
listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

ASIAN INSIGHTS VICKERS SECURITIES

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 Indonesia Company Guide
Matahari Putra Prima
Version 6 | Bloomberg: MPPA IJ | Reuters: MPPA.JK Refer to important disclosures at the end of this report

DBS Group Research . Equity 17 Apr 2018

HOLD No more inventory clearance in 2018

Last Traded Price ( 16 Apr 2018): Rp394 (JCI : 6,287.00)
Price Target 12-mth: Rp380 (-4% downside) (Prev Rp430)
Analyst
Tiesha PUTRI +6221 30034931 tiesha.narandha@id.dbsvickers.com
Andy SIM, CFA +65 6682 3718 andysim@dbs.com
What’s New
 4Q17 results trailed expectations
 Cut FY18F net profit by 49% for higher interest
expense
 Margin should improve in FY18F as management had
completed inventory clearance last year
 Maintain HOLD with lower TP of Rp380
MAINTAIN HOLD. We cut our FY18F net profit forecast by 49%
after factoring in a higher interest cost assumption. MPPA’s
inventory clearance along with its price-cutting programme had
resulted in significant EBIT losses of Rp1.11tr in 4Q17. Our
discussion with management suggests that its inventory
clearance programme has come to an end, with inventory days
improving to 68 days in 2017 (vs. 2014-2016 range of 75-85
days).
Where we differ: We expect MPPA’s profitability to improve,
supported by its cost-cutting efforts in 2017. Looking ahead,
MPPA looks to cut the slow-moving SKUs and instead focus on
basic necessities as well as save costs by downsizing its stores
gradually. We believe these efforts would translate into better
profitability in 2018.

Price Relative
Potential catalyst: Stronger same-store sales growth. We expect
household spending to improve this year, supported by
government stimulus and regional elections. An improvement in
same-store sales, along with a leaner management structure
and an increase in employee productivity, should pave the way
for MPPA to turn profitable in 2018.

Valuation:
Forecasts and Valuation
FY Dec (Rpbn) 2016A 2017A 2018F 2019F We revise down our DCF-based TP to Rp380/share after
Revenue 13,527 12,563 13,143 13,886 factoring in potential share price dilution post rights issue. We
EBITDA 525 (1,201) 522 548
Pre-tax Profit 101 (1,670) 26.0 61.0 assume 11.7% WACC and 4% sustainable growth rate in our
Net Profit 38.0 (1,243) 19.0 46.0 calculation. Our TP implies 6.1x FY18F EV/EBITDA.
Net Pft (Pre Ex.) 38.0 (1,243) 19.0 46.0
Net Pft Gth (Pre-ex) (%) (82.6) nm nm 137.6
Key Risks to Our View:
EPS (Rp) 7.16 (231) 2.64 6.28
EPS Pre Ex. (Rp) 7.16 (231) 2.64 6.28
EPS Gth Pre Ex (%) (83) nm nm 138 Intensifying competition with minimarkets or regional
Diluted EPS (Rp) 7.16 (231) 2.64 6.28 supermarkets could trigger a price war and offset the impact
Net DPS (Rp) 0.0 0.0 0.0 0.0 of the cost-cutting programme.
BV Per Share (Rp) 452 218 272 278
PE (X) 55.1 nm 149.2 62.8
At A Glance
PE Pre Ex. (X) 55.1 nm 149.2 62.8
P/Cash Flow (X) 3.6 nm 15.9 4.5 Issued Capital (m shrs) 5,378
EV/EBITDA (X) 5.0 nm 6.2 5.1 Mkt. Cap (Rpbn/US$m) 2,119 / 154
Net Div Yield (%) 0.0 0.0 0.0 0.0 Major Shareholders (%)
P/Book Value (X) 0.9 1.8 1.4 1.4 Multipolar 50.2
Net Debt/Equity (X) 0.2 1.0 0.2 CASH Prime Star Investment Pte. Ltd. 26.1
ROAE (%) 1.6 (105.9) 1.0 2.3
Free Float (%) 23.7
Earnings Rev (%): 349 (49) 4 3m Avg. Daily Val (US$m) 0.07
Consensus EPS (Rp): (50.9) (0.4) 8.09
ICB Industry : Consumer Services / General Retailers
Other Broker Recs: B: 1 S: 6 H: 5
Source of all data on this page: Company, DBSVI, DBS Bank, Bloomberg
Finance L.P

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WHAT’S NEW

4Q17 results coming in below expectations

4Q17 results trailed expectations; inventory clearance led to
EBIT loss. MPPA stepped up its inventory clearance
programme in 4Q17, resulting in an EBIT loss of Rp1.11tr. It
booked a net loss of Rp858bn in 4Q17 and net loss of
Rp1.24tr in FY17, far higher than our net loss forecast of
Rp277bn. Gross margin turned negative in 4Q17 (at -11.9%)
vs. 3Q17 gross margin of 12.3% due to heavy discounting.
On the other hand, working capital cycle improved
significantly to 11 days in 2017 from 20 days in 2016 due to
faster inventory turnover.
Revenue in line. Revenue dropped 9% y-o-y (+2% q-o-q) to
Rp2.95tr in 4Q17. This is in line with our FY17 revenue
forecast of Rp12.56tr (-7% y-o-y). The company closed down
five Hypermart outlets in FY17 but added three new stores. It
also closed down a number of non-performing Foodmart
Express outlets in Kalimantan. Despite stronger commodity
prices and exports last year, the company has yet to see any
significant improvement in its ex-Java outlets.
Revise down FY18F net profit by 49%. We raise our FY18F
gross margin assumption from 15.3% to 17.2% (in line with
management’s target) as we assume no further inventory
clearance this year. However, we raise our debt and interest
expense assumptions, resulting in a 49% plunge in net profit.
We lower our DCF-based TP to Rp380, which has already
baked in potential ownership dilution of 27% post the
planned rights issue.

Quarterly / Interim Income Statement (Rpbn)

FY Dec 4Q2016 3Q2017 4Q2017 % chg yoy % chg qoq

Revenue 3,231 2,895 2,952 (8.6) 2.0

Cost of Goods Sold (2,529) (2,540) (3,304) 30.6 30.1
Gross Profit 702 355 (353) nm nm
Other Oper. (Exp)/Inc (616) (617) (758) 23.1 22.9
Operating Profit 86.0 (262) (1,111) nm 324.0
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 nm nm
Associates & JV Inc 0.0 0.0 0.0 nm nm
Net Interest (Exp)/Inc (20.0) (29.0) (36.0) nm nm
Exceptional Gain/(Loss) 0.0 0.0 0.0 nm nm
Pre-tax Profit 65.0 (291) (1,147) nm nm
Tax (59.0) 75.0 289 nm 283.8
Minority Interest 0.0 0.0 0.0 nm nm
Net Profit 6.00 (216) (858) nm 297.5
Net profit bef Except. 6.00 (216) (858) nm 297.5
EBITDA 180 (172) (1,020) nm nm
Margins (%)
Gross Margins 21.7 12.3 (11.9)
Opg Profit Margins 2.7 (9.1) (37.6)
Net Profit Margins 0.2 (7.5) (29.1)

Source of all data: Company, DBSVI, DBS Bank

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Sales per sqm (Rp mn)

CRITICAL DATA POINTS TO WATCH

Critical Factors

Store productivity. We think that competition among hypermarket

operators in the Greater Jakarta area has been intensifying, with
operators revamping stores and pushing promotions to boost
demand. The growing number of convenience stores also adds to
the competitive pressure. We think this could potentially impede
the company’s revenue growth going forward, as growth in sales
productivity per sqm has become harder to achieve (which was Retail space (sqm)
evident in the last three years). We estimate revenue to grow at a
CAGR of 5.1% over FY17-19F, driven mostly by improvement in
same-store sales (we project 4% SSSG in FY18F-19F).

Economic recovery in ex-Java cities. MPPA is looking to further

strengthen its foothold in underpenetrated ex-Java cities. Around
131 stores, or 45% of MPPA’s total stores, are located outside Java.
The performance of MPPA’s ex-Java stores, particularly in Sumatera
and Kalimantan, was weak in 2016. Given the high dependency of
the ex-Java economy on commodity prices, the recent rally in
commodity prices may help support consumers’ purchasing power, Same store sale growth trend
hence leading to better performance by MPPA’s ex-Java stores. 8.0%

6.0% 5.4%
Significant contribution from marketing income. MPPA has a 4.6%
4.1% 4.1%
negative marketing expense item booked under its operating 4.0%

expenses. This is essentially marketing income which is earned from 2.0%

advertising fees (through brochures and pamphlets) as well as
0.0%
supplier rebates and discounts. We note that marketing income’s 13A 14A 15A 16A 17F 18F 19F
contribution to operating income has been increasing, i.e. 51% in -2.0%
-1.9%
2013 to 333% in 2016. We view this increasing dependency -4.0%
negatively as it reduces earnings visibility and presents risks. In -4.5%
-6.0%
FY16, marketing income accounts for 4.2% of MPPA’s gross sales.
Furthermore, part of it is uncollectible, causing MPPA to book an -8.0% -6.9%

account receivable impairment amounting to Rp67bn in FY17. We Margin trend and forecasts
assume an impairment of Rp35bn for FY18F or 0.3% of gross sales. % Gross margin EBIT margin
Our sensitivity analysis shows that a 10bps move in account 20 17.0 17.2 17.2
16.4
receivable impairment/gross sales would impact MPPA’s bottom
15
line by 53%.
10 8.0

5 2.2 1.6 1.3 0.3 1.1 0.1 1.0 0.3

0

-5

-10
-9.9
-15 -12.4
15A 16A 17F 18F 19F

Source: Company, DBSVI, DBS Bank

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Appendix 1: A look at Company's listed history – what drives its share price?

MPPA share price vs. peers

Oct 6, 2010 = 100
MPPA (LHS) MPPA vs. Consumer Sector (RHS)
5,000 1.40
4,500
1.20
4,000 A2
3,500 1.00

3,000
0.80
2,500 B
0.60
2,000 A1
1,500 0.40
1,000
0.20
500
0 -
Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17
Source: Bloomberg Finance L.P, DBSVI, DBS Bank

A: Store productivity B: Profitability

MPPA’s shares move in line with its store productivity. This was
evident in 2010-2011 and 2015-2016, when the decline in
store productivity caused the share price to fall in 2010-2011
and 2015-2016. An increase in productivity, driven by prudent
new store openings or market share gain, led to a share price
rally, as shown in 2014.
We have also seen a growing correlation between MPPA’s share
price and its profitability since 2015. The subsequent chart
shows that MPPA’s share price had de-rated in 2015 to 1Q17,
as intensifying competition and operating deleverage crimped
its EBIT margin.

MPPA’s share price vs. store productivity MPPA’s share price vs. EBIT margin
5,000 20.0 5,000 10.0
4,500 19.5 4,500 8.0
4,000 19.0 4,000 6.0
3,500 18.5 3,500 4.0
18.0 3,000 2.0
3,000
17.5 2,500 0.0
2,500
17.0
2,000 2,000 -2.0
16.5
1,500 1,500 -4.0
16.0
1,000 1,000 -6.0
15.5
500 15.0 500 -8.0
- 14.5 - -10.0

MPPA share price (LHS) Sales/sqm, Rp mn (RHS) MPPA share price (LHS) EBIT margin, % (RHS)

Source: Bloomberg Finance L.P, DBSVI, DBS Bank Source: Bloomberg Finance L.P, DBSVI, DBS Bank

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Leverage & Asset Turnover (x)

Balance Sheet:

Asset-light business model. MPPA has an asset-light business

model as it does not own its establishments, but lease them
from either affiliated or third parties. As at end-Dec 2017,
MPPA’s net and gross gearing was 1x and 1.3x, respectively.

Share Price Drivers:

Recovery in consumer spending. Any signs of recovery in the

domestic economy or consumer spending (i.e. reflected in a
Capital Expenditure
strong Consumer Confidence Index) will fuel expectations of Rpbn

stronger revenue and earnings growth. This would lead to more

positive investor sentiment towards MPPA, thus boosting its
share price.

Key Risks:

Weakness in domestic consumption. Lower consumer

spending would naturally reduce the company’s revenue.
Furthermore, consumers tend to hold off purchases of durable
goods, such as electronics, gadgets, and household ROE (%)
equipment, which typically carry higher margins. This could
lead to margin contraction for MPPA.

Intensifying competition. Rising competition against

minimarkets, hypermarkets or regional supermarkets may force
MPPA to cut its selling price further in order to retain its price-
sensitive customers. This will offset the impact of MPPA’s cost-
cutting programme.

Company Background
Forward PE Band (x)
Matahari Putra Prima is a mass grocery retail store operator in
Indonesia. Its store formats include hypermarkets under the
name “Hypermart”, supermarkets under “Foodmart”, as well
as health and beauty stores under “Boston Health & Beauty”.
More than 90% of the company’s revenue is derived from its
hypermarket stores, and currently, it is the second-largest
hypermarket store operator in Indonesia, with 25% market
share in terms of retail value.

PB Band (x)

Source: Company, DBSVI, DBS Bank

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Company Guide
Matahari Putra Prima

Key Assumptions
FY Dec 2015A 2016A 2017A 2018F 2019F
Sales per sqm (Rp mn) 20.0 18.0 17.0 18.0 19.0
Retail space (sqm) 734,862 767,807 760,865 772,395 783,924
SSSG (%) (2.0) (5.0) (7.0) 4.00 4.00

Segmental Breakdown
FY Dec 2015A 2016A 2017A 2018F 2019F
Revenues (Rpbn)
Cost of consignment
Direct sales 13,713 13,436 12,465 13,040 13,777
Consignment sales 711 661 673 704 744
Others (622) (570) (575) (602) (636)
Total 13,802 13,527 12,563 13,143 13,886
Gross profit (Rpbn)
Direct sales 2,180 2,202 905 2,152 2,273 Net revenue
Consignment sales 89.0 92.0 98.0 103 108
Others
Total 2,269 2,294 1,003 2,254 2,382
Inventory clearance sales on
Gross profit Margins (%)
discretionary items led to
Direct sales 15.9 16.4 7.3 16.5 16.5 lower margins
Consignment sales 12.5 13.8 14.6 14.6 14.6
Others
Total 16.4 17.0 8.0 17.2 17.2

Income Statement (Rpbn)

Expect margins to normalise
FY Dec 2015A 2016A 2017A 2018F 2019F post one-off inventory
Revenue 13,802 13,527 12,563 13,143 13,886 clearances
Cost of Goods Sold (11,534) (11,233) (11,560) (10,888) (11,504)
Gross Profit 2,269 2,294 1,003 2,254 2,382
Other Opng (Exp)/Inc (1,961) (2,117) (2,562) (2,111) (2,237)
Operating Profit 307 177 (1,559) 143 145
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 0.0 0.0 0.0 0.0 0.0
Net Interest (Exp)/Inc (36.0) (76.0) (110) (118) (83.0)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 272 101 (1,670) 26.0 61.0
Tax (50.0) (63.0) 426 (6.0) (15.0)
Minority Interest 0.0 0.0 0.0 0.0 0.0 Factor higher interest costs
Preference Dividend 0.0 0.0 0.0 0.0 0.0 due to higher-than-expected
Net Profit 222 38.0 (1,243) 19.0 46.0 debt quantum
Net Profit before Except. 222 38.0 (1,243) 19.0 46.0
EBITDA 617 525 (1,201) 522 548
Growth Higher interest costs arising
Revenue Gth (%) 1.6 (2.0) (7.1) 4.6 5.7 from more gross debt
EBITDA Gth (%) (36.8) (14.9) nm nm 5.0
Opg Profit Gth (%) (56.8) (42.4) (980.7) (109.2) 0.8
Net Profit Gth (Pre-ex) (%) (60.0) (82.6) nm nm 137.6
Margins & Ratio
Gross Margins (%) 16.4 17.0 8.0 17.2 17.2
Opg Profit Margin (%) 2.1 1.3 (11.9) 1.0 1.0
Net Profit Margin (%) 1.5 0.3 (9.5) 0.1 0.3
ROAE (%) 8.8 1.6 (105.9) 1.0 2.3
ROA (%) 3.7 0.6 (22.9) 0.3 0.8
ROCE (%) 7.2 1.9 (51.3) 3.2 3.2
Div Payout Ratio (%) 63.1 0.0 N/A 0.0 0.0
Net Interest Cover (x) 8.6 2.3 (14.1) 1.2 1.7
Source: Company, DBSVI, DBS Bank

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Matahari Putra Prima

Quarterly / Interim Income Statement (Rpbn)

FY Dec 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017

Revenue 3,231 3,101 3,616 2,895 2,952

Cost of Goods Sold (2,529) (2,667) (3,048) (2,540) (3,304)
Gross Profit 702 433 568 355 (353)
Other Oper. (Exp)/Inc (616) (651) (537) (617) (758)
Operating Profit 86.0 (218) 31.0 (262) (1,111)
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 0.0 0.0 0.0 0.0 0.0
Net Interest (Exp)/Inc (20.0) (20.0) (25.0) (29.0) (36.0)
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 65.0 (238) 6.00 (291) (1,147)
Tax (59.0) 61.0 1.00 75.0 289
Minority Interest 0.0 0.0 0.0 0.0 0.0
Net Profit 6.00 (177) 7.00 (216) (858)
Net profit bef Except. 6.00 (177) 7.00 (216) (858)
EBITDA 180 (128) 119 (172) (1,020)

Growth
Revenue Gth (%) (4.2) (4.0) 16.6 (19.9) 2.0
EBITDA Gth (%) 37.2 nm nm nm nm
Opg Profit Gth (%) 98.6 (353.7) (114.3) (940.2) 324.0
Negative gross margin as
Net Profit Gth (Pre-ex) (%) (22.9) (3,087.7) (103.9) (3,230.4) 297.5
MPPA held inventory
Margins
clearance on discretionary
Gross Margins (%) 21.7 14.0 15.7 12.3 (11.9) items
Opg Profit Margins (%) 2.7 (7.0) 0.9 (9.1) (37.6)
Net Profit Margins (%) 0.2 (5.7) 0.2 (7.5) (29.1)

Balance Sheet (Rpbn)

FY Dec 2015A 2016A 2017A 2018F 2019F

Net Fixed Assets 1,462 1,576 1,486 1,316 1,131

Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0
Other LT Assets 861 1,024 1,455 1,455 1,455
Cash & ST Invts 409 249 373 649 1,068
Inventory 2,498 2,747 1,582 2,496 1,812
Debtors 26.0 47.0 68.0 60.0 63.0
Other Current Assets 777 1,060 463 463 463
Total Assets 6,033 6,702 5,427 6,438 5,993
Inventory clearance impact
ST Debt 250 140 1,490 990 990
Creditor 1,763 2,318 1,411 2,101 1,610
Other Current Liab 801 876 975 975 975
LT Debt 400 610 0.0 0.0 0.0 Higher debt quantum led to
Other LT Liabilities 304 328 377 377 377 higher interest rates
Shareholder’s Equity 2,514 2,430 1,174 1,995 2,041
Minority Interests 0.0 0.0 0.0 0.0 0.0
Total Cap. & Liab. 6,033 6,702 5,427 6,438 5,993 Inventory clearance
significantly improved cash
Non-Cash Wkg. Capital 736 660 (273) (57.0) (246) conversion cycle
Net Cash/(Debt) (241) (501) (1,117) (341) 78.0
Debtors Turn (avg days) 0.8 1.0 1.7 1.8 1.6
Creditors Turn (avg days) 57.9 66.3 58.9 58.9 58.9
Inventory Turn (avg days) 76.8 85.2 68.3 68.3 68.3
Asset Turnover (x) 2.4 2.1 2.1 2.2 2.2
Current Ratio (x) 1.3 1.2 0.6 0.9 1.0
Quick Ratio (x) 0.2 0.1 0.1 0.2 0.3
Net Debt/Equity (X) 0.1 0.2 1.0 0.2 CASH
Net Debt/Equity ex MI (X) 0.1 0.2 1.0 0.2 CASH
Capex to Debt (%) 65.0 53.2 18.0 21.0 22.1
Z-Score (X) 3.4 2.9 2.6 2.6 2.9
Source: Company, DBSVI, DBS Bank

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Matahari Putra Prima

Cash Flow Statement (Rpbn)

FY Dec 2015A 2016A 2017A 2018F 2019F

Pre-Tax Profit 272 101 (1,670) 26.0 61.0

Dep. & Amort. 309 347 358 378 403
Tax Paid (50.0) (57.0) (63.0) (6.0) (15.0)
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. (559) 104 982 (216) 189
Other Operating CF (114) 87.0 250 0.0 0.0 Working capital cashflow
Net Operating CF (141) 583 (143) 182 638 benefit from flushing out
Capital Exp.(net) (422) (399) (268) (208) (219) inventory
Other Invts.(net) (32.0) (158) (121) 0.0 0.0
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF (129) (71.0) 14.0 0.0 0.0
Imminent rights issue and
Net Investing CF (583) (628) (376) (208) (219)
dilution impact of c.27% to
Div Paid (231) (140) 0.0 0.0 0.0
embark on transformation
Chg in Gross Debt 650 100 740 (500) 0.0 and new growth strategy
Capital Issues 0.0 0.0 0.0 802 0.0
Other Financing CF (33.0) (75.0) (97.0) 0.0 0.0
Net Financing CF 385 (115) 643 302 0.0
Currency Adjustments 0.0 0.0 0.0 0.0 0.0
Chg in Cash (339) (160) 124 276 419
Opg CFPS (Rp) 77.6 88.9 (209) 54.2 61.3
Free CFPS (Rp) (105) 34.2 (76.4) (3.5) 57.1
Source: Company, DBSVI, DBS Bank

Target Price & Ratings History

Source: DBSVI, DBS Bank

Analyst: Tiesha PUTRI
Andy SIM, CFA

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 Company Guide
Matahari Putra Prima

DBSVI, DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends

Completed Date: 17 Apr 2018 06:48:07 (WIB)

Dissemination Date: 17 Apr 2018 08:04:41 (WIB)

Sources for all charts and tables are DBSVI, DBS Bank unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by PT DBS Vickers Sekuritas Indonesia (''DBSVI''), DBS Bank Ltd. This report is solely intended for the clients of DBS Bank
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Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

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 Company Guide
Matahari Putra Prima

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
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The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
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1
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate does not serve as an officer of the
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An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his
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Regional Company Guide

Robinsons Retail Holdings

Version 9 | Bloomberg: RRHI PM | Reuters: RRHI.PS
Refer to important disclosures at the end of this report

DBS Group Research . Equity 29 March 2018

HOLD (Downgrade from BUY) Hardly a game changer

Last Traded Price ( 28 Mar 2018): P89.30 (PCOMP : 7,979.83)
Price Target 12-mth: P87.00 (3% downside) (Prev P107)
Analyst
Regional Research Team equityresearch@dbs.com
What’s New
 RRHI acquires Rustans – hardly a game changer
 Earnings cut on lower margins, ROE drops after
folding in Rustans
 FY17 earnings is behind our and consensus
estimates
 Downgrade to HOLD, TP cut to P87.00
Downgrade Robinsons Retail Holdings (RRHI) to HOLD, TP
trimmed to P87.00. We cut our EPS estimates by 7%/10% for
FY18F/19F as we consolidate in our forecast the acquisition of
the loss-making Rustans and the earnings dilution that comes
along with the deal. We view the deal to be negative in the
near-to-medium term but constructive in the long term. We
expect positive impact on RRHI’s earnings to be felt the earliest
in FY20. This acquisition is significant relative to the previous
acquisition but is not a game changer. Furthermore, we adjust
our estimates to reflect earnings pressure stemming from the
increasing competition in the retail mall space. Our TP is based
on SOTP valuation and implies 25x/22x FY18F/19F PE – in line
with regional peer average.

Price Relative Where we differ: Our FY18F/FY19F EBIT forecasts are 3%/6%
P Relative Index behind consensus estimates as we factor in the impact of the
111.3
214
acquisition of Rustans and increasing competition from retail
194
101.3
174
mall operators. We are of the view that the acquisition is
91.3

81.3
154 positive for the long term but negative in the near-to-medium
term. The acquisition may take some time to have a more
134
71.3
114
61.3 94 meaningful impact on RRHI’s earnings. It is a significant
51.3
Mar-14 Mar-15 Mar-16 Mar-17
74
Mar-18 acquisition but not a game changer.
Robinsons Retail Holdings (LHS) Relative PCOMP (RHS)

Potential catalysts: 1) faster SSSGs; 2) M&A activities; 3)

Forecasts and Valuation
FY Dec (P m) 2016A 2017A 2018F 2019F
speedier store expansion; 4) faster turnaround of Rustans, and
Revenue 105,293 115,239 133,868 165,577 5) significant margin improvement on minimal store closures
EBITDA 7,964 8,618 9,695 11,019 and cost control.
Pre-tax Profit 6,667 7,304 7,948 8,699
Net Profit 4,830 4,980 5,515 6,035 Valuation:
Net Pft (Pre Ex.) 4,830 4,980 5,515 6,034
EPS (P) 3.49 3.60 3.50 3.83 HOLD, cut TP to P87.00, based on SOTP valuation
EPS Pre Ex. (P) 3.49 3.60 3.50 3.83 methodology. Our TP implies FY18F/19F PE of 25x/22x.
EPS Gth (%) 11 3 (3) 9
EPS Gth Pre Ex (%) 11 3 (3) 9 Key Risks to Our View:
Diluted EPS (P) 3.49 3.60 3.50 3.83 Key risks to our forecast are: 1) competition intensifying more
Net DPS (P) 0.68 0.75 0.68 0.75
BV Per Share (P) 34.4 37.2 46.9 50.0 than assumed; 2) fewer number of new store rollouts; 3) more
PE (X) 25.6 24.8 25.5 23.3 closures of non-performing stores, and 4) negative surprise
PE Pre Ex. (X) 25.6 24.8 25.5 23.3 from the acquisition of Rustans.
P/Cash Flow (X) 20.0 19.0 14.9 13.8
EV/EBITDA (X) 15.1 13.8 13.6 11.5
Net Div Yield (%) 0.8 0.8 0.8 0.8 At A Glance
P/Book Value (X) 2.6 2.4 1.9 1.8 Issued Capital (m shrs) 1,385
Net Debt/Equity (X) CASH CASH CASH CASH Mkt. Cap (Pm/US$m) 123,681 / 2,365
ROAE (%) 10.6 10.0 8.8 7.9 Major Shareholders (%)
Earnings Rev (%): (7) (10) JE Holdings Sdn Bhd 35.0
Consensus EPS (P): 4.2 4.7 Gokongwei Lance Yu 11.7
Other Broker Recs: B: 15 S: 0 H: 3 Gokongwei PE Robina Y 7.7
Free Float (%) 45.7
Source of all data on this page: Company, DBS Bank, Bloomberg 3m Avg. Daily Val (US$m) 1.5
Finance L.P
ICB Industry : Consumer Services / General Retailers

ed: TH / sa: CS/AS /AH

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 Company Guide
Robinsons Retail Holdings

WHAT’S NEW

A big acquisition but not a game changer

The merger, details thus far. RRHI announced on 23 March Who is Rustan?
2018 that it will enter a share-swap deal with Dairy Farm
Rustan Supercenters, Inc. (RSCI, Rustan) is a member of Dairy
International (LSE: DFIB). The transaction will involve DFIB 1)
Farm Group – a leading Pan-Asian retailer incorporated in
selling 100%-ownership stake in Rustan Supercenters, Inc.
Bermuda (with standard listing in London Stock Exchange and
(RSCI, Rustan), valued at about P18bn, in exchange for
secondary listings in Bermuda and Singapore), which operates
12.15% new RRHI shares worth US$346m; and, 2)
over 7,100 multi-format outlets in Hong Kong, Taiwan,
subscribing to an additional 6.1% stake in RRHI shares worth
China, Macau, Singapore, India, the Philippines, Cambodia,
US$174m. Both share sales are valued at P94 per RRHI share,
Brunei, Malaysia, Indonesia and Vietnam.
a 2.9% premium to RRHI’s share price of P91.35 as of 14
March 2018 (when the key terms for the transactions were Rustan runs Rustan’s Supermarkets, the Shopwise chain of
agreed). hypermarkets and Wellcome. Catering to upper-middle
markets in major urban centres, Rustan’s Supermarket is an
Post-transaction, DFIB will effectively own an 18.25% stake in
established retailer known for its offering of high-quality
RRHI – a 12.15% stake will arise from the sale of RSCI, while
products from exclusive international brands as well as fresh
the remaining 6.1% stake will come from Gokongwei’s sales
local produce. Shopwise, on the other hand, operates a
of shares (which will be funded by DFIB through internal cash
number of hypermarkets with various affordable and quality
and bank borrowings). With the resulting exchange in equity,
offerings, while Wellcome is a Hong Kong-based supermarket
DFIB will have rights to two board seats in RRHI, while
chain with strong presence in Taiwan and a growing number
Gokongwei’s stake will be reduced from 65% to 51% post-
of stores in the Philippines. As of 2017, RSCI manages 73
share sale and equity dilution. RRHI will take over 100% of
stores (56 of which are concentrated in urban Metro Manila),
RSCI’s operations by late 2018.
with over 441,000 sqm in gross floor area. RSCI’s sales for
FY17 reached P22bn (roughly US$440m), but incurred an
operating loss of roughly P200m.

Pre- and post-merger ownership structure

Source of all data: Company, DBS Bank

Page 76

Our view. The deal is negative for existing shareholders in the
near-to-medium term due to the earnings dilution, lower
margins from having to absorb a loss-making business, and
lower ROE. Nevertheless, we see the deal to be constructive
in the long term as it improves RRHI’s competitiveness,
though not a game changer. We believe management can
turn around Rustan but it will take some time before we see
meaningful positive impact on RRHI’s earnings.
The Good: Improves RRHI’s operations
 Improves RRHI’s long-term competitiveness: RRHI’s
market share should improve and close the gap with
Puregold. While there will be some redundancies, we
view the merger to be overall complementary and
address some of RRHI’s weaknesses. Rustan will improve
RRHI’s positioning in Metro Manila and significantly
boost its premium grocery platform.
 Synergies with Rustan and Dairy Farm. We could see
margins expand due to economies of scale. The deal
improves RRHI’s bargaining power over suppliers due to
larger order sizes (based on FY17 numbers, Rustan will
increase RRHI’s supermarket revenues by ~55%).
Centralised distribution centres and IT system to improve
profitability of Rustan as well as enhance overall margins.
And lastly, we think that RRHI could transfer operational
best practices to Rustan and could have access to Dairy
Farm’s core competence.
The Bad: Near- to medium-term pain for existing shareholders
 Earnings cut and lower margins. Rustan is a loss-making
business. The company continued to post losses in FY17,
roughly around P200m in EBIT loss. Based on the most
recent filing with the Securities and Exchange
Commission (SEC), Rustan’s net loss for FY15 was
P307m or around 5.6% of our FY18F earnings forecast.
After folding in Rustan into our estimates, it resulted in
lower margins and earnings cut of 7%/10% for
FY18F/19F – also taking into account lower earnings
from department stores.
 Dilution and lower ROE. Post-transaction, we estimate
the number of shares to increase by 191m, resulting in
earnings dilution and lower ROE. The deal is positive for
the long term but will not be earnings accretive, at least
in the next three years. Our FY19F ROE drops to 7.7%
from 10.4% pre-merger.
The Uncertain: Turnaround story but a matter of when it will
happen
 When can RRHI turn around Rustan? We acknowledge
RRHI’s ability to turn around losing businesses. However,
we think Rustan will be quite a challenge. Taking into
account Rustan’s size, there are bound to be
redundancies and potential for negative surprises. Upon
takeover, we think management will hold off expanding
Rustan and focus on cutting operating costs. We believe
Company Guide
Robinsons Retail Holdings
the positive impact on earnings can be felt the earliest in
FY20.
FY17 earnings, behind estimates. RRHI reported 4Q17 net
profit of P1.49bn (-2.6% y-o-y), bringing its FY17 net income
to P4.98bn (+3.1% y-o-y) or 94% of our full-year forecast –
below our and consensus estimates. 4Q17 revenues grew by
8.2% y-o-y to P34.1bn, mainly driven by healthy y-o-y
performances and resilient SSSG of the Supermarket, DIY
Store, and Specialty Store businesses. Blended SSSG
normalised to 2.7% for the full year, which was expected,
coming from a high base from an election year (2016 SSSG:
6.7%). FY17 consolidated margins expanded with higher
gross profit margin (+40bps to 22.3%) as well as EBIT margin
(+30bps to 5.5%).
Supermarkets – Net sales for the quarter rose 9.7% y-o-y to
P15.1bn, boosted by new store additions (+5.5%) and
resilient SSSG (2.5%), bringing FY17 net sales to P52.4bn
(+8% y-o-y). EBITDA for 4Q17 increased faster by 10.7% y-o-
y. EBITDA for the full year was up 6.1% y-o-y to P3.7bn, but
with a 10-bp margin contraction to 7%. The segment ended
the year with a total of 154 stores (+14 stores y-o-y).
Department Stores – 4Q17 revenues came in at P5.5bn, weak
with only 2.1% y-o-y growth. With 4Q17 sales unable to
boost FY17 segment revenues, full-year top line registered
flat growth of 1.8% y-o-y to P16.1bn. 4Q17 fall in SSSG (-
4.1%) dragged full-year SSSG figures (-2.6%) amid high-base
effects following 2016’s election-related spending, prolonged
decrease in GFA (due to massive renovation of Robinsons
Galleria), and a generally strong competitive landscape.
Unexciting gross profit numbers (+3% y-o-y to 4.2bn) for
FY17 likewise failed to arrest increased operating costs,
leading to a 14.6% y-o-y decline in EBITDA to P0.98bn and a
110-bp contraction in EBITDA margins to 6.1%. Department
store network count increased to 49, with net store addition
of six y-o-y.
DIY Stores – Sales for the quarter was 8.4% higher y-o-y at
P3.5bn, supported by strong SSSG of 6.1%. Still benefitting
from a growing residential market, full-year GP/EBITDA
improved by +12.6%/+13% y-o-y to P3.9bn/P1.2bn. Store
count at the end of the year was 193 (+15 y-o-y).
Convenience Stores – Following three net store closures in
FY17, the ratio of franchised to company-owned stores
improved to 46:54. Sales in 4Q17 grew by 2.4% y-o-y to
P2.3bn, with 2.8% SSSG from sustained demand from ready-
to-eat category. FY17 GP (including royalty income) however
declined by 0.9% y-o-y to P2.3bn, with a 60-bp margin
contraction to 39.8%. Amid store rationalisation, EBITDA
likewise declined 5% y-o-y to P303m. EBITDA margin was at
5.3% (-30bps y-o-y).
Drugstores – Following acquisition of The Generics Pharmacy
(TGP), FY17 sales came in stronger by 21.6% y-o-y to
P14.5bn. SSSG (for South Star Drug only) was however weak
at 1.6%, mainly due to replenishment issues following the
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Robinsons Retail Holdings

segment’s migration to a new merchandising system in 2H17.
Nonetheless, GP/EBITDA improved by 31.1%/54.2% y-o-y to
P2.7bn/P1.1bn. RRHI’s drugstore network reached 2,499 in
FY17 – South Star Drug’s store count increased by 75 stores
y-o-y, while TGP’s network grew by 103 in the interim.
performance across most formats. 4Q17/FY17 SSSG of
6.4%/7.8% were driven by appliances, beauty, and Daiso
Japan. For FY17, GP/EBITDA improved by 18.6%/36.4% y-o-y
to P4.1bn/P1.1bn. Total store count was at 342 (+36 stores y-
o-y).

Specialty Stores – Sales generated during the quarter reached

P5bn, a 12.4% growth y-o-y, on the back of robust sales

Quarterly / Interim Income Statement (Pm)

FY Dec 4Q2016 3Q2017 4Q2017 % chg yoy % chg qoq

Revenue 31,481 27,695 34,058 8.2 23.0

Cost of Goods Sold (24,422) (21,424) (26,558) 8.7 24.0
Gross Profit 7,059 6,270 7,501 6.3 19.6
Other Oper. (Exp)/Inc (5,206) (4,763) (5,419) 4.1 13.8
Operating Profit 1,853 1,508 2,081 12.3 38.1
Other Non Opg (Exp)/Inc 132 41.9 (35.9) nm nm
Associates & JV Inc 15.4 40.1 18.9 22.8 (53.0)
Net Interest (Exp)/Inc 181 188 181 (0.2) (3.9)
Exceptional Gain/(Loss) 0.0 0.0 0.0 - -
Pre-tax Profit 2,182 1,778 2,245 2.9 26.3
Tax (513) (421) (541) 5.5 28.7
Minority Interest (140) (147) (216) (54.3) 46.2
Net Profit 1,529 1,209 1,488 (2.6) 23.2
Net profit bef Except. 1,529 1,209 1,488 (2.6) 23.2
EBITDA 2,608 2,082 2,561 (1.8) 23.1
Margins (%)
Gross Margins 22.4 22.6 22.0
Opg Profit Margins 5.9 5.4 6.1
Net Profit Margins 4.9 4.4 4.4

Source of all data: Company, DBS Bank

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GFA growth %
CRITICAL DATA POINTS TO WATCH 9.8
9.7

Growth via organic GFA expansion. RRHI’s store network grew 8.4 8
by 332 stores, representing a 10% increase in gross floor area 7.3 7.4
6.8
7.0
(GFA) in FY17. This resulted in revenue growth of 9.4% y-o-y in
5.6
FY17. Moving into FY18F/FY19F, we expect fewer store closures
4.2
and GFA to expand 7.4%/6.8% - excluding M&A. These should
2.8
support revenue growth and steady/improve operating margins
1.4

Consumer confidence is key. SSSG is normalising at the 2-3% 0.0

2015A 2016A 2017A 2018F 2019F
level. SSSG should pick up as consumer confidence should be
stronger after the passage of package 1 of the tax reform Same-store-sales growth %
programme – which lowers income tax rates of the working- 6.8 6.7

class population. The law has taken effect from 1 January 2018
5.5
and should benefit RRHI’s target market – the middle-income
households. Based on our analysis of the said law, the middle- 4.1
4.1

income households will enjoy the highest wealth effect relative 3 3 3

2.7
to income levels. We acknowledge that the law is inflationary.
However, RRHI’s target market is less sensitive to inflation. 1.4

Furthermore, given the high approval rating of President

0.0
Duterte amid his controversial war on drugs and anti-western 2015A 2016A 2017A 2018F 2019F
comments, we see no reason for consumer confidence to Source: Company, DBS Bank
deteriorate in the near-to-medium term. Against this backdrop,
RRHI is best positioned to benefit given its broad and
countrywide exposure in the Philippine modern retail space.

Acquisitions and expansion into other retail formats. RRHI

continues to be on a lookout for value-enhancing acquisitions
and opportunities to expand its retail format. So far, RRHI has
made one acquisition each in 2016, 2017, and 2018. RRHI
announced the purchase of 51% of The Generics Pharmacy in
2016 and 20% of Taste Central (operator of Beauty Manila) in
2017, and acquired Rustan in 2018 via a share swap
transaction. We see RRHI announcing at least one acquisition in
FY19F. RRHI has a large war chest that is more than enough to
fund a large and high-profile M&A. We have not assumed any
acquisitions in our FY18F-19F earnings forecasts.

Industry backdrop is supportive of growth. Low penetration of

modern retail (25% overall and 30% grocery based on
Euromonitor data as of end-2016), rising household disposable
income (6.2% CAGR in FY00-16) which is underpinned by
growth in jobs, lower income tax rates, and increase in
compensation of government employees moving forward, and
favourable demographics are factors supporting store expansion
in the Philippine modern retail space. We think Duterte’s
administration will allocate more resources to Visayas and
Mindanao. These are areas where modern retail is very much
underpenetrated and where RRHI is ahead relative to its main
competitors.

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Appendix 1:

Inflation as critical factor Remarks

(P) (%)
120 5.0
While RRHI’s target market is less sensitive to price
100 4.0 increases, inflation still remains a big risk for
consumer stocks as far as discretionary spending is
80 3.0 concerned.
60 2.0

40 1.0

20 0.0

0 -1.0
2013 2014 2015 2016 2017

RRHI Share Price Performance (LHS) PH Inflation (RHS)

SSSG as critical factor Remarks

(P) (%)
120 10.0
SSSG is reflective of overall consumer confidence
9.0
110 8.0 and consumption spend; it is however affected by
100 7.0 increased competition among fellow retailers.
6.0
90 5.0
4.0
80 3.0
70 2.0
1.0
60 0.0

RRHI Share Price Performance (LHS) SSSG (RHS)

Share price movement (5-year historical trends)

(P)
110 Dec-17: I nvested in
Sep-17: R eplaces
online beauty brand
EDC on PSEi
(B eautyM NL) operator

100
Apr-15: Announces
launch of R obinsons M ay-16: Acquired
Galleria Cebu 51% stake in TGP
90 Nov-17:
Apr-17: Opens two
malls in Leyte Negative
Jun-15: Launch of
3Q17 net
Costa Cof f ee
Oct-14: R obonsons income on low M ar-18:
80 Supermarket marks household Announced
100th store milestone consumption share-swap txn
with Dairy
Aug-16: B uys Farms (DFI ) in
70 majority stake in exchange f or
De Oro Pacif ic 100%
ownership of
R SCI
60
Jun-14: Acquired Chavez Pharmacy,
a drugstore chain in B atangas
Jan-16: Earmarks P5bn to put
Jan-14: Acquired
up 200 stores in 2016
Jaynith's Supermarket
50
Nov-13 Mar-14 Jul-14 Dec-14 Apr-15 Aug-15 Jan-16 May-16 Sep-16 Feb-17 Jun-17 Oct-17 Mar-18

Robinsons Retail Holdings, Inc. (RRHI) Share Price Performance

Source: Thompson Reuters, Company

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Robinsons Retail Holdings

Leverage & Asset Turnover (x)

0.25 1.5

Balance Sheet: 0.20 1.5

Inundated with cash. RRHI has been in a net cash position since its
IPO. Even with its aggressive expansion plans, capex can be funded 0.15 1.5

with internally generated cash. RRHI ended 2017 with negative cash 0.10 1.4
conversion cycle (CCC) days at –4.9 days.
0.05 1.4

0.00 1.4
Share Price Drivers: 2015A 2016A 2017A 2018F 2019F
Gross Debt to Equity (LHS) Asset Turnover (RHS)
Operating margin turnaround. We expect closures of non-performing
stores to taper off further in FY18F. Operating margins appear to Capital Expenditure
have improved y-o-y in the last seven quarters. Having said this, we Pm
3,400.0
project operating margins to gradually improve in FY18F and FY19F. 3,350.0

However, with the consolidation of loss-making Rustan, we see 3,300.0

3,250.0
margins to be under pressure in FY18F and FY19F. 3,200.0
3,150.0

Rustan’s turnaround. We do not doubt the ability of RRHI’s 3,100.0

3,050.0
management to turn around the loss-making businesses. However, 3,000.0
we think Rustan will be challenging for RRHI’s management given its 2,950.0
2015A 2016A 2017A 2018F 2019F
size. There are bound to be redundancies as well as potential for
Capital Expenditure (-)
negative surprises.
ROE (%)
Key Risks: 10.0%

Expansion constraints plus competition. Availability of space (right

8.0%
size and location), rental cost, and securing business permits
(especially in areas where local retailers have deep roots within the 6.0%

community) are critical factors to the success of RRHI’s expansion

4.0%
plans. The current level of competition, stemming from big-chain
players and local mom-and-pop retailers, pose extra challenges to 2.0%

RRHI expansion plans.

0.0%
2015A 2016A 2017A 2018F 2019F

Closure of non-performing stores erodes margins. There is the

possibility of more store closures in FY18F, especially in RRHI’s Forward PE Band (x)
(x)
weaker segments - department stores, convenience stores, and 32.6

specialty stores. Significant markdowns and closing costs are 30.6

detrimental to margins. 28.6 +2sd: 28.5x

26.6
+1sd: 25.8x
24.6
Company Background 22.6
Avg: 23.2x

Robinsons Retail Group (RRHI) is a holding company which is solely 20.6 -1sd: 20.6x
involved in the retail business. The company operates retail outlets in 18.6
-2sd: 18x
various channels such as supermarkets, department stores, DIY 16.6

14.6
outlets, convenience stores, drugstores, and specialty stores. Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

PB Band (x)
3.4
(x)
3.2

3.0
+2sd: 2.89x
2.8

2.6 +1sd: 2.66x

2.4 Avg: 2.43x

2.2 -1sd: 2.2x
2.0 -2sd: 1.96x
1.8

1.6
Mar-14 Mar-15 Mar-16 Mar-17 Mar-18

Source: Company, DBS Bank

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Key Assumptions
FY Dec 2015A 2016A 2017A 2018F 2019F
GFA growth % 9.70 7.30 8.00 7.40 6.80
Same-store-sales growth 4.10 6.70 3.00 3.00 3.00
%
Segmental Breakdown
FY Dec 2015A 2016A 2017A 2018F 2019F
Revenues (P m)
Supermarket 43,238.7 48,465.1 52,363.0 63,848.0 88,409.1
Department Store 14,906.0 15,827.5 16,116.0 18,636.9 20,731.6
Hardware 9,871.8 11,128.6 12,323.0 13,984.6 15,882.2
Convenience Store 5,493.0 5,665.5 5,710.0 5,873.5 6,367.8
Drug Store 8,069.5 11,934.2 14,518.0 16,352.4 18,348.1
Specialty Stores 10,358.6 13,416.1 15,550.0 16,642.9 17,656.4
Adjustments (1,055.1) (1,143.7) (1,341.0) (1,470.1) (1,818.3)
Total 90,883 105,293 115,239 133,868 165,577
At the low end of
EBIT (P m)
management’s guidance
Supermarket 2,380.22 2,706.86 2,834.00 3,126.69 3,304.64
Department Store 919.10 844.10 617.00 713.51 793.71
Hardware 747.73 841.96 1,007.00 1,142.78 1,297.85
Convenience Store 6.11 (54.79) 42.00 43.20 46.84
Drug Store 311.48 628.11 987.00 1,111.71 1,247.39
Specialty Stores 373.54 535.72 851.00 910.81 966.28
Adjustments (9.34) (9.08) (33.00) (36.89) (40.07)
Total 4,729 5,493 6,305 7,012 7,617
EBIT Margins (%)
Supermarket 5.5% 5.6% 5.4% 4.9% 3.7%
Department Store 6.2% 5.3% 3.8% 3.8% 3.8%
Hardware 7.6% 7.6% 8.2% 8.2% 8.2%
Convenience Store 0.1% -1.0% 0.7% 0.7% 0.7%
Drug Store 3.9% 5.3% 6.8% 6.8% 6.8%
Specialty Stores 3.6% 4.0% 5.5% 5.5% 5.5%
Total 5.2 5.2 5.5 5.2 4.6

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Income Statement (P m)
FY Dec 2015A 2016A 2017A 2018F 2019F
Revenue 90,883 105,293 115,239 133,868 165,577
Cost of Goods Sold (71,134) (82,267) (89,523) (104,051) (129,054)
Gross Profit 19,749 23,026 25,716 29,817 36,523
Other Opng (Exp)/Inc (15,020) (17,533) (19,411) (22,805) (28,906)
Operating Profit 4,729 5,493 6,305 7,012 7,617
Other Non Opg (Exp)/Inc 295 331 128 128 128
Associates & JV Inc 40 103 124 124 124
Net Interest (Exp)/Inc 784 741 746 682 827
Exceptional Gain/(Loss) 0 0 0 0 1
Pre-tax Profit 5,848 6,667 7,304 7,948 8,699
Tax (1,271) (1,471) (1,700) (1,754) (1,919)
Minority Interest (235) (366) (623) (678) (742)
Preference Dividend 0 0 0 0 0 Margins to decline post-
Net Profit 4,342 4,830 4,980 5,515 6,035 merger of Rustan
Net Profit before Except. 4,342 4,830 4,980 5,515 6,034
EBITDA 6,712 7,964 8,618 9,695 11,019
Growth
Revenue Gth (%) 13.0 15.9 9.4 16.2 23.7
EBITDA Gth (%) 14.2 18.7 8.2 12.5 13.7
Opg Profit Gth (%) 5.4 16.2 14.8 11.2 8.6
Net Profit Gth (Pre-ex) (%) 21.9 11.2 3.1 10.7 9.4
Margins & Ratio
Gross Margins (%) 21.7 21.9 22.3 22.3 22.1
Opg Profit Margin (%) 5.2 5.2 5.5 5.2 4.6
Net Profit Margin (%) 4.8 4.6 4.3 4.1 3.6
ROAE (%) 10.4 10.6 10.0 8.8 7.9

ROCE (%) 8.0 7.9 7.9 7.3 6.7

Div Payout Ratio (%) 16.8 19.4 20.9 19.5 19.7
Net Interest Cover (x) NM NM NM NM NM
Source: Company, DBS Bank

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Quarterly / Interim Income Statement (P m)

FY Dec 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017

Revenue 31,481 25,723 27,763 27,695 34,058

Cost of Goods Sold (24,422) (20,004) (21,537) (21,424) (26,558)
Gross Profit 7,059 5,719 6,226 6,270 7,501
Other Oper. (Exp)/Inc (5,206) (4,560) (4,669) (4,763) (5,419)
Operating Profit 1,853 1,159 1,557 1,508 2,081
Other Non Opg (Exp)/Inc 132 60 62 42 (36)
Associates & JV Inc 15 25 40 40 19
Net Interest (Exp)/Inc 181 185 192 188 181
Exceptional Gain/(Loss) 0 0 0 0 0
Pre-tax Profit 2,182 1,429 1,851 1,778 2,245
Tax (513) (328) (410) (421) (541)
Minority Interest (140) (105) (155) (147) (216)
Net Profit 1,529 996 1,286 1,209 1,488
Net profit bef Except. 1,529 996 1,286 1,209 1,488
EBITDA 2,608 1,736 2,156 2,082 2,561
Lacklustre 4Q17 dragged
down by weaker department
Growth
store operations
Revenue Gth (%) 23.6 (18.3) 7.9 (0.2) 23.0
EBITDA Gth (%) 30.0 (33.4) 24.2 (3.5) 23.1
Opg Profit Gth (%) 38.3 (37.5) 34.3 (3.2) 38.1
Net Profit Gth (Pre-ex) (%) 19.6 (34.9) 29.1 (6.0) 23.2
Margins
Gross Margins (%) 22.4 22.2 22.4 22.6 22.0
Opg Profit Margins (%) 5.9 4.5 5.6 5.4 6.1
Net Profit Margins (%) 4.9 3.9 4.6 4.4 4.4

Balance Sheet (P m)
FY Dec 2015A 2016A 2017A 2018F 2019F

Net Fixed Assets 11,149 12,562 13,601 14,283 14,511

Invts in Associates & JVs 3,425 3,424 3,548 3,672 3,796
Other LT Assets 26,783 30,477 30,940 48,940 48,940
Cash & ST Invts 9,764 12,718 14,557 19,789 25,395
Inventory 10,576 13,342 14,847 17,250 21,373
Debtors 1,774 1,988 2,260 2,625 3,247
Other Current Assets 1,688 2,185 2,419 2,419 2,419
Total Assets 65,160 76,695 82,172 108,980 119,680

ST Debt 2,845 6,576 6,318 6,318 6,318

Creditor 14,796 16,797 17,818 20,702 25,650
Other Current Liab 885 1,106 1,199 2,003 2,168 Large war chest that
LT Debt 0 0 0 0 0 can be easily
Other LT Liabilities 1,129 1,652 1,565 1,565 1,565 liquidated. Additional
Shareholder’s Equity 43,524 47,587 51,536 73,978 78,824 P18bn is from the
Minority Interests 1,982 2,978 3,736 4,414 5,156 purchase of Rustan
Total Cap. & Liab. 65,160 76,695 82,172 108,980 119,680

Non-Cash Wkg. Capital (1,643) (388) 509 (410) (779)

Net Cash/(Debt) 6,920 6,142 8,239 13,471 19,077
Debtors Turn (avg days) 6.6 6.5 6.7 6.7 6.5
Creditors Turn (avg days) 76.0 71.9 72.2 69.2 67.2
Inventory Turn (avg days) 51.4 54.4 58.8 57.6 56.0
Asset Turnover (x) 1.5 1.5 1.5 1.4 1.4
Current Ratio (x) 1.3 1.2 1.3 1.5 1.5
Quick Ratio (x) 0.6 0.6 0.7 0.8 0.8
Net Debt/Equity (X) CASH CASH CASH CASH CASH
Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH
Capex to Debt (%) 109.3 49.4 49.1 49.3 53.4
Z-Score (X) 6.1 5.1 5.5 5.5 5.4
Source: Company, DBS Bank

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Cash Flow Statement (P m)

FY Dec 2015A 2016A 2017A 2018F 2019F

Pre-Tax Profit 5,848 6,667 7,303 7,946 8,695

Dep. & Amort. 1,647 (2,038) 2,073 2,430 3,149
Tax Paid (1,268) (1,393) (836) (950) (1,754)
Assoc. & JV Inc/(loss) (40) (103) (124) (124) (124)
Chg in Wkg.Cap. (1,366) (1,039) (1,198) 116 203
Other Operating CF (372) 4,075 (725) 0 0
Net Operating CF 4,449 6,169 6,493 9,418 10,169
Capital Exp.(net) (3,109) (3,246) (3,103) (3,112) (3,375)
Other Invts.(net) (1,359) (531) (409) 0 0
Invts in Assoc. & JV (4,144) (2,180) 0 0 0
Div from Assoc & JV 84 112 0 0 0 Capex can be funded
Other Investing CF 1,694 (80) 33 (18,000) 0 by internally generated
Net Investing CF (6,835) (5,924) (3,479) (21,112) (3,375) cashflows
Div Paid (729) (936) (1,280) (1,073) (1,188)
Chg in Gross Debt 2,733 3,731 (258) 0 0
Capital Issues 0 0 0 18,000 0
Other Financing CF 167 (87) 363 0 0
Net Financing CF 2,172 2,709 (1,175) 16,927 (1,188)
Currency Adjustments 0 0 0 0 0
Chg in Cash (213) 2,953 1,839 5,232 5,606
Opg CFPS (P) 4.2 5.2 5.6 5.9 6.3
Free CFPS (P) 1.0 2.1 2.4 4.0 4.3
Source: Company, DBS Bank

Target Price & Ratings History

111.00 P
12- mt h
Dat e of Closing
106.00 S.No. T arget Rat ing
Report Pric e
Pric e
101.00 1: 24 Apr 17 80.80 93.00 BUY
2: 03 May 17 79.00 93.00 BUY
96.00 6
3: 15 May 17 80.05 93.00 BUY
4: 18 J ul 17 86.95 101.00 BUY
91.00
4 5: 15 Aug 17 87.50 101.00 BUY
6: 04 J an 18 94.30 107.00 BUY
86.00
5
81.00 2
1 3
76.00

71.00
Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18

Not e : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank

Analyst: Regional Research Team

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DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends

Completed Date: 29 Mar 2018 10:59:00 (HKT)

Dissemination Date: 29 Mar 2018 15:29:55 (HKT)
Sources for all charts and tables are DBS Bank unless otherwise specified
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated
corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii)
redistributed without the prior written consent of DBS Bank.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents
(collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into
account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any
representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject
to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have
regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the
information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate
independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including
any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this
document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with
its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The
DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking,
investment banking and other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there
can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or
condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is
under no obligation to update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from
actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE
RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to
the commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not
engage in market-making.

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Robinsons Retail Holdings

ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst
1
(s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate does not serve as an officer
of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of
the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for
the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research
2
report or his associate does not have financial interests in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group
has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or
investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking
function of the DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd., DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), DBSV HK or their subsidiaries and/or other affiliates do
not have a proprietary position in the securities recommended in this report as of 28 Feb 2018.
2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this
Research Report.

Compensation for investment banking services:

3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities
as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to
obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed
in this document should contact DBSVUSA exclusively.

Disclosure of previous investment recommendation produced:

4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other
investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding
12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations
published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the
preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of
which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person
accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer
or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis.
This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an
issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing
applicant.

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ASEAN Grocery Retail

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
Completed Date: 17 Apr 2018 11:34:14 (SGT)
Dissemination Date: 17 Apr 2018 11:59:31 (SGT)

Sources for all charts and tables are DBS Bank unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated
corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii)
redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other
factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or
warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without
notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific
investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees
only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial
advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)
arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not
to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons
associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may
not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to
update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.

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ASEAN Grocery Retail

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public
offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage
in market-making.

ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)
primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate 1 does not serve as an officer of the
issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real
estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or
his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment
banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the
DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates have a
proprietary positions in the CP ALL, Sheng Siong Group recommended in this report as of 30 Mar 2018.
2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research
Report.

Compensation for investment banking services:

3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a
manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further
information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document
should contact DBSVUSA exclusively.

Disclosure of previous investment recommendation produced:

4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other
investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1
An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of
which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person
accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2
Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a
new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term
does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new
listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

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ASEAN Grocery Retail

RESTRICTIONS ON DISTRIBUTION
General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or
located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be
contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd
(“DBSVS”). DBS holds Australian Financial Services Licence no. 475946.

DBSVS is exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001
(“CA”) in respect of financial services provided to the recipients. DBSVS is regulated by the Monetary Authority of Singapore
under the laws of Singapore, which differ from Australian laws.

Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to
carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance
(Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Vickers
Hong Kong Limited, a licensed corporation licensed by the Hong Kong Securities and Futures Commission to carry on the
regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of
Hong Kong).

For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at equityresearch@dbs.com.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from
ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this
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and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any
of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek
to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also
have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and
other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No.
198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the
Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign
entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial
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or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.

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ASEAN Grocery Retail

United This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore.
Kingdom
This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised
and regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and
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Dubai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor,
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Financial Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for
Centre professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined
Emirates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes
only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell
any financial product. It does not constitute a personal recommendation or take into account the particular investment
objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment
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report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

United States This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named
on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research
analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company,
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Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified,
jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

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ASEAN Grocery Retail

DBS Regional Research Offices

HONG KONG MALAYSIA SINGAPORE

DBS Vickers (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd
Contact: Paul Yong Contact: Wong Ming Tek (128540 U) Contact: Janice Chua
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