SSI Credit Suisse Analysis

Topics: Retailing, Department store, Philippines Pages: 242 (24639 words) Published: March 26, 2015
17 December 2014
Asia Pacific/Philippines
Equity Research
Specialty Softlines

SSI Group, Inc.
(SSI.PS / SSI PM)
Rating
OUTPERFORM* [V]
Price (17 Dec 14, P)
9.13
Target price (P)
11.30¹
Upside/downside (%)
23.8
Mkt cap (P mn)
30,246.5 (US$ 676.4)
Enterprise value (P mn)
34,801
Number of shares (mn)
3,312.86
Free float (%)
26.1
52-week price range
9.32 - 7.73
ADTO - 6M (US$ mn)
4.3
*Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector.
¹Target price is for 12 months.
[V] = Stock considered volatile (see Disclosure Appendix).

Research Analysts
Karim P. Salamatian, CFA
852 2101 7996
karim.salamatian@credit-suisse.com
Danielo Picache
632 858 7758
danielo.picache@credit-suisse.com

INITIATION

Specialist in retailing
■ Initiating coverage with OUTPERFORM and TP of P11.30. SSI is the largest specialty retailer in the Philippines operating 672 stores (>4x larger than the No. 2 player) representing 106 brands. Sales from Fast Fashion and Luxury are expected to represent 35% and 22% of 2014 sales respectively, but over the next three years Fast Fashion should grow 1.5-2x faster than other categories. SSI has a 30% economic interest in PH FamilyMart (PFM), which is capable of becoming No. 2 in the convenience store sector. ■ Unique combination of rising relevance and value enhancement. Retailers that can aggressively expand their store base and selling space while driving ROIC higher offer investors a unique proposition and warrant premium valuations. SSI fits this bill, as 24% annual selling space growth will be accompanied by ROIC reaching 19% in 2016, which will put it comfortably ahead of its relevant peers. Pushing returns higher while becoming more relevant is the key value proposition for shareholders. ■ 44% annual earnings growth through 2016. Among retailers covered by Credit Suisse in NJA, SSI presents the strongest earnings growth profile on the back of 18% top-line growth, expanding gross and operating margins, modest deleveraging and evolving equity investments. Inventory levels are high and present heightened merchandising mix, but given their strong operating capabilities in the market, we believe GMs are sustainable and inventory levels will become more digestible for investors.

■ 12-month target price of P11.30. Our valuation is primarily based on EV/IC vs Excess Returns model because it most appropriately captures management's ability to deliver a more relevant retailer (store expansion, market share gains, top-line growth), while creating value for shareholders (rising ROIC). Multiple expansion potential over the next 12 months is appealing as the stock currently trades at 10% and 13% '15E P/E and EV/EBITDA discounts to the peers. Risks to our target price include high inventory levels, depreciating Philippines Peso, store expansion and operating cost inflation.

Share price performance
12

Price (LHS)

Rebased Rel (RHS)

10
8
6
Nov-14

120
115
110
105
100

The price relative chart measures performance against the
PHILIPPINE SE COMPOSITE INDEX which closed at 6966.21
on 17/12/14
On 17/12/14 the spot exchange rate was P44.72/US$1

Performance over
Absolute (%)
Relative (%)

1M
7.3
10.9

3M 12M








Financial and valuation metrics
Year
Revenue (P mn)
EBITDA (P mn)
EBIT (P mn)
Net profit (P mn)
EPS (CS adj.) (P)
Change from previous EPS (%)
Consensus EPS (P)
EPS growth (%)
P/E (x)
Dividend yield (%)
EV/EBITDA (x)
P/B (x)
ROE (%)
Net debt/equity (%)

12/13A
12,788.0
1,538.3
904.6
600.8
0.29
n.a.
n.a.
23.5
31.5
0
22.2
6.7
28.3
143.1

12/14E
14,852.4
2,739.7
1,814.1
1,025.0
0.31

12/15E
17,803.9
3,254.5
2,143.5
1,298.8
0.39

12/16E
20,745.2
3,881.8
2,578.5
1,802.5
0.54


6.8
29.5
0
12.7
4.6
21.7
69.4


26.7
23.3
0
10.7
3.8
17.8
57.2


38.8
16.8
0
8.5
3.1
20.4
28.8

Source: Company data, Thomson...
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