{"id":327721,"date":"2024-05-03T01:22:08","date_gmt":"2024-05-02T17:22:08","guid":{"rendered":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/?p=327721"},"modified":"2024-05-03T01:22:10","modified_gmt":"2024-05-02T17:22:10","slug":"stock-in-focus-wilcon-depot-wlcon-3-may-2024-by-rcbc-securities","status":"publish","type":"post","link":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/stock-in-focus-wilcon-depot-wlcon-3-may-2024-by-rcbc-securities\/","title":{"rendered":"Stock in Focus: Wilcon Depot (WLCON) – 3 May 2024 by RCBC Securities"},"content":{"rendered":"\n

Summary of Broker’s Recommendation<\/h2>\n\n\n\n
Stock Code<\/strong><\/td>WLCON<\/td><\/tr>
Company Name<\/strong><\/td>Wilcon Depot Inc.<\/td><\/tr>
Broker<\/strong><\/td>RCBC Securities<\/td><\/tr>
Opinion Issued on<\/strong><\/td>3 May 2024<\/td><\/tr>
Recommendation<\/strong><\/td>Buy<\/td><\/tr>
1-Year Target Price<\/strong><\/td>PHP 19.00<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
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We downgrade our net income forecasts for the long-term and cut our target price
(TP) for WLCON to Php19.00 due to persistent adverse inflationary impact to demand
and high-interest expenses affecting the bottomline. <\/p>\n\n\n\n

Nonetheless, we remain vigilant on the inflation trend and remain hopeful of interest rate cuts in the latter part of the year becoming a significant catalyst to WLCON\u2019s outlook. Moreover, we see WLCON as a value-play considering its stock price underperformance of 24% YTD, which we believe is unwarranted. WLCON is trading significantly cheaper at a PE of 18.8x compared to its 5-yr historical average PE of 32.4x. At our TP, the share price upside is still substantial at 19.5%.<\/p>\n\n\n\n

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Analysis and Opinion<\/h2>\n\n\n\n

Earnings down 9%, below consensus estimates<\/h3>\n\n\n\n

Wilcon Depot (WLCON) reported 2023 net income of Php3.5 billion, 9% lower year-on-year (y\/y), below consensus but in line with our house views. Consolidated net sales rose 3% to Php34.6 billion, driven by new store sales though slightly offset by 3.4% decline in SSSG on weak demand. <\/p>\n\n\n\n

Home depot sales rose only 2% to Php33 billion, the Home Essentials grew 16% to Php741 million, while Projects surged 71% to Php540 million. Gross profit rose 4% to Php13.7 billion on a 56bps margin improvement to 39.6% as the contribution of in-house and branded products rose to 51.2% from 51.1% in 2022. <\/p>\n\n\n\n

EBITDA fell 6% to Php5.9 billion on a 1.57ppts margin decline to 17.1%, while operating income slid 10% to Php4.6 billion on 1.85ppts margin shrinkage to 13.4% on higher operating expenses (opex).<\/p>\n\n\n\n

SSSG down as private consumption remains soft<\/h3>\n\n\n\n

Blended 2023 same-store sales growth (SSSG) was down 3.4% as ticket size grew modestly at 2.9% (2022: 11.3%) while transaction count declined 6.1% (2022: 2.7%) as private consumption remained soft. Home Depot sales were flattish, only up by 2% as Depot\u2019s SSSG was down 4.1%, while Home Essentials SSSG was also down 4.6%. Project\u2019s SSSG surged 71%, higher than 2022\u2019s 64.6% SSSG as developers continued to ramp up delayed projects due to the COVID-19 pandemic.<\/p>\n\n\n\n

Opex still high on expansion mode<\/h3>\n\n\n\n

Operating expenses climbed 13% to Php8.9 billion, driven by pre-operating expenses related to new nine (9) store openings within 2023. The impact of pre-operating expenses should normalize within 2024 as the opex base increases.<\/p>\n\n\n\n

Moreover, after WLCON opens its 100th store (expected by end-2024), store openings should normalize to ~6 stores\/yr from the previous 10 stores\/yr and in complement with opening more smaller size stores, pre-operating expenses impact to bottomline would be minimized.<\/p>\n\n\n\n

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Check how many brokers recommend this stock<\/h2>\n\n\n\n
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All Stock Rankings<\/a><\/blockquote>