FREE Stock in Focus: WLCON (23 Apr 2018) by AP Securities

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Summary of Broker’s Recommendation
BROKER RECOMMENDATION TARGET PRICE ISSUED ON
AP Securities BUY No Target Price indicated 23 April 2018

 

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Our Partner Broker’s Analysis

We recently visited WLCON and the following are the key points during our meeting with them:

1. WLCON is maintaining its target same-store sales growth (SSSG) of 5% despite higher inflation which led to more conservative topline targets for other listed retailers. WLCON sees sustained demand from their buyers, who belong to the upper mid-to-high income class and are less sensitive to any price increase. Also, higher prices will likely not deter these buyers since building a home is planned way ahead; worst case scenario for WLCON is a possible shift to their lower value brands.

2. 1st Quarter (1Q) 2018 SSSG was well above 5%, due to strong performance for the months of Jan. and Feb. while March slightly slowed due to the Holy Week. 1Q 2018 SSSG was primarily driven by increase in prices, as well as higher transaction volume.

3. WLCON targets to increase gross profit margin (GPM) by 100 bps to around 31% driven by strong sales of their in-house and exclusive brands which derive GPM 10% – 15% higher than concession brands. Peso depreciation is not a concern as of now since direct imports are RMB-pegged, and any import costs are passed on to prices.

4. Faster OPEX growth is anticipated due to new store openings, as well as increase in logistics costs since majority of the 9 new stores to be opened this year is located outside Metro Manila. To save on costs, WLCON plans to decentralize their supply chain, which may result to higher service levels, leading to increase in sales.

5. IKEA will not be much of a threat since furniture and fixtures accounts for only 2% of WLCON’s sales. WLCON noted that Villar’s All Home has entered the market aggressively, pricing their products at a deep discount. WLCON will not engage in a price war though as they have yet to feel the impact of All Home.

6. WLCON aims to achieve a mid-teens level Earnings per Share (EPS) growth, which is relatively in line with our forecast. However, we think that there could be a possible overshoot on OPEX, as well as a potential miss on the aggressive 9 store openings this year.

 

Our Partner Broker’s Recommendation

We will be revisiting our forecasts to take into account these emerging risks. For now, we maintain our BUY rating on WLCON as we believe that its long-term growth potential is intact.

 

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AP Securities (formerly Angping & Associates Securities)
AP Securities (formerly Angping & Associates Securities)

AP Securities (formerly Angping & Associates Securities) is one of PinoyInvestor’s partners in delivering superior and reliable stock research reports that help Filipino investors make smart stock investing decisions! Learn more about them here.