MRSGI: 2019 Double Digit Earnings Growth Forecast

It’s been almost a year since I first bought MRSGI shares. Over the months, I have acquired shares that accumulated to more than fifty percent of portfolio. With MRSGI, I must say that I have learned genuine patience as I have observed it dipped to as low as PHP1.90 per share in November (i.e., about half the price I first had a bulk purchase). In the same month however, MRSGI saw an uptrend which has encouraged me averaging down the position.

MRSGI Company Profile

Metro Retail Stores Group, Inc., (PSE: MRSGI) is a Philippine publicly-listed company engaged in the business of buying, selling, and trading of goods, wares, and merchandise of all kinds, targeting low to middle-income consumers. It is one of the leading retailers in the country with a market leading position in Visayas and a growing presence in Luzon.

It caters the public through its three complementary retail formats – a supermarket format operated under Metro Supermarket and Metro Fresh N Easy brands, a department store format under Gaisano Metro Department Store and Supermarket brands, and a hypermarket format under the Super Metro brand.

MRSGI Strategic Thrusts

• eCommerce. The company is in the process of finalizing its eCommerce Model and has already begun shortlisting potential providers.
• Network Expansion. It continuously develops new store formats with modern store designs and concepts, pursues M&A opportunities in strategic areas, and aggressively pursues strategic partnerships (sourcing, etc.).
• Strengthening Core Processes. It strengthens ISO/wholesale model and supply chain process, enhances store and merchandise planning capacity, and develops an integrated distribution system. Likewise, it has increased leasing component of its stores and piloted shared services model.

MRSGI Strategic Growth

As of 2018, MRSGI has over 50 stores across the Philippine archipelago. From the given number, it has projected 63 operational stores with 554 square meters (GFA) by 2019. For instance, in August 2018, it opened another Metro Supermarket at Ayala Malls Feliz, Pasig City. Its Super Metro Hypermarket Baybay (Leyte), Metro Bacolod (Negros Occidental), Metro Tacloban (Eastern Visayas), and Metro Danao (Cebu) are all expected to be in business operations by 2019 (2Q 2018 Earnings Call and Analysts’ Briefing).  

2019 Double Digit Earnings Growth Forecast

MRSGI expects double digit earnings growth in 2019 as driven by faster store expansion across strategic locations in the country. Apart from the new store openings, the reopening of MRSGI’s flagship supermarket and department store by 2Q2019 is also expected to boost revenue growth.

While the building that was burned is fully insured, MRSGI will be able to collect insurance money amounting to more than PHP1.0B. Finally, it sees a continued increase in gross margin improvement (50-100 bps) attributable to continued sourcing efficiencies and better supplier support.

Consensus currently has a BUY rating with a FV estimate of Php3.30/sh. Furthermore, MRSGI’s valuations are very attractive as the stock is trading at 6.6X 19E P/E, a steep discount compared to the consumer average P/E of 17.2X 19E (COL Financial).