Robinsons IPO Discount to Puregold Lures Buyers: Southeast Asia

RRHI Listing date: Today (November 11, 2013)

Robinsons Retail Holdings Inc. (RRHI), the largest Philippine initial public offering, is giving investors a chance to bet on Southeast Asia’s fastest-growing economy at a 12 percent valuation discount to its biggest rival.

The operator of supermarkets and department stores controlled by Philippine billionaire John Gokongwei will start trading in Manila today after raising at least $621 million. The IPO price of 58 pesos per share values the company at 22 times estimated 2014 profit, said Bach Johann Sebastian, a senior vice president at Robinsons. Puregold Price Club Inc. (PGOLD), the nation’s biggest listed retailer, trades at 25 times the average of analysts’ earnings estimates compiled by Bloomberg.

Private consumption accounts for about 70 percent of the Philippine economy, which joined China as the fastest-growing country in Asia in the second quarter. Money managers at Metropolitan Bank & Trust Co. (MBT) and Rizal Commercial Banking Corp. who bought Robinsons shares in the IPO say the stock will probably rise as household purchases in the nation of 106 million people increase, while the company’s valuation discount versus Puregold narrows.

“Robinsons will be supported by rising consumer demand, one of the main drivers of the Philippine economic story,” Allan Yu, the chief investment officer at Metropolitan Bank & Trust, the nation’s third-largest money manager with $8.7 billion under management. “The company’s expansion can close the discount with Puregold over time.”

Fund Inflows

Philippine financial markets are set to open today after Super Typhoon Haiyan struck the central Philippines, leaving a death toll that the Associated Press reported may reach 10,000. The storm destroyed an airport, cut power and phones lines, and flattened crops.

While the typhoon will weigh on the peso and the nation’s stock market, consumer companies may get a boost from purchases tied to relief efforts, said Jonathan Ravelas, the chief market strategist at Manila-based BDO Unibank Inc., the largest listed Philippine lender.

The Philippine Stock Exchange Index has climbed 9.3 percent this year, versus a 5.7 percent drop in the MSCI Emerging Markets Index. Foreign investors have bought a net $888 million of Philippine shares in 2013, the fifth-straight year of inflows, as economic growth lifted corporate profits to all-time highs and the nation won investment-grade status from ratings companies.

Rally Bets

The country’s gross domestic product, which increased 7.5 percent in the second quarter, will probably expand 7 percent during the whole of 2013 and 6 percent next year, among the five-fastest projected growth rates of 65 economies tracked by Bloomberg worldwide.

Disposable incomes in the Philippines may rise at a 5.4 percent compound annual rate from 2012 through 2017, versus 4.8 percent from 2008 to 2012, Robinsons said in its IPO prospectus, citing the Economist Intelligence Unit. Sales at store-based retailers are forecast to grow at a 7.7 percent rate, up from 3.9 percent.

Robinsons, the nation’s biggest IPO in dollar terms, plans to spend more than 80 percent of the share-sale proceeds to expand its store network. Half of the spending will go toward building new supermarkets, Chief Financial Officer Diosdado Zapata said at an investor briefing in Manila on Oct. 14.

Puregold Advance

The company, which started as department-store operator more than 30 years ago, plans to operate 1,400 shops by the end of next year as it expands beyond Manila, Zapata said. Robinsons had 940 stores, from DIY shops to drugstores, at the end of June, according to its IPO prospectus.

“I like the offer,” said Rico Gomez, head of the trust trading division at Manila-based Rizal Commercial Banking Corp. “There’s expectations among investors the stock will rally.”

Puregold, which operates supermarkets and hypermarkets, has advanced 36 percent in Manila this year. The stock gained 260 percent since it began trading in October 2011, four times more than the PSE index. Puregold had 192 stores at the end of June, up from less than 80 when it raised about $194 million from its IPO.

Robinsons is unlikely to repeat the two-year returns of its rival, said Metrobank’s Yu. The company may have less room for expansion than Puregold, while the prospect of reduced monetary stimulus in the U.S. is curbing investor demand for emerging-market equities, he said.

Fed Risk

The Philippine stock gauge has lost 14 percent since May 22, when Fed Chairman Ben S. Bernanke signaled the central bank’s bond-buying program could be trimmed if the U.S. economy showed a sustained recovery. Puregold has slipped 3.2 percent from its Oct. 18 peak.

Robinsons’ sales of durable consumer goods, including electronics and apparel, make it more attractive than Puregold for some investors, said Jomar Lacson, an analyst at Campos Lanuza & Co. in Manila.

“Those who want to bet on the growth and changing spending pattern caused by rising income will add Robinsons to their holdings,” Lacson said. “Puregold doesn’t give a full Philippine retail experience. It’s not exposed to spending on consumer durables.”

Discretionary purchases may double to 30 percent of household spending from 15 percent in as little as five years if the economy sustains growth near current levels, according to Alex Pomento, a strategist at Macquarie Group Ltd. in Manila.

“With the expected shift in consumer spending patterns, this segment becomes attractive,” Pomento said. “At the end of the day, Robinsons is a good proxy to consumption. With a discounted valuation to Puregold, the stock’s bias should be upwards.”

Source: Bloomberg