Company Reports

Narrow-moat President Chain Store Corporation’s first-quarter results largely met our expectations, with convenience store businesses in Taiwan and the Philippines driving top-line and profit growth. We expect a product mix shift in Taiwan 7-Eleven and new store openings in the Philippines to continue driving top-line momentum for PCSC during 2024. We keep our 2024-28 forecasts unchanged and retain our fair value estimate of TWD 276 per share, which implies 27 times 2024 P/E, 6 times enterprise value/EBITDA, and 3.2% dividend yield. We think the shares are fairly valued currently.

7-Eleven is the market leader in convenience stores in Taiwan, with roughly half of the market share by store count. The second-largest player, Taiwan Family Mart, trails by roughly 20 percentage points in share. As the second largest merchandise sales channel in Taiwan, and the largest in 2020 due to covid-19-related restrictions, 7-Eleven remains a crucial retail outlet for packaged food and beverage. We think President Chain Store Corporation has utilized its competitive advantages well to combat rising threats from peers and competing channels.

Narrow-moat President Chain Store Corporation, or PCSC, reported 2023 results that largely met our expectations on the top line and operating profit. The convenience store businesses in Taiwan and the Philippines continued to be major sales and profit growth drivers during the fourth quarter, and we expect these segments to be key for the company’s longer-term growth. We retain our fair value estimate at TWD 276 per share, which implies 27 times 2024 price/earnings, 6 times EV/EBITDA, and 3.2% dividend yield. We think the shares are fairly valued now.

7-Eleven is the market leader of convenience stores in Taiwan, with roughly half of market share by store count. The second largest player, Taiwan Family Mart, trails by roughly 20 percentage points in share. As the second largest merchandise sales channel in Taiwan, and the largest in 2020 due to COVID-19-related restrictions, 7-Eleven remains a crucial retail outlet for packaged food and beverage. We think President Chain Store Corp., or PCSC, has utilized its competitive advantages well to combat against rising threats from peers and competing channels.

Narrow-moat President Chain Store Corporation delivered solid third-quarter results, with both topline and profits exceeding our estimates. Momentum in 7-Eleven across Taiwan and the Philippines as well as Starbucks in Taiwan drove the beat. We lift our 2023-25 net income estimates to account for the better third-quarter results as well as stronger growth expectations for the Philippines business in the next two years. As a result, we raise our fair value estimate to TWD 276 per share, from TWD 274 per share, and think shares are slightly undervalued.

7-Eleven is the market leader of convenience stores in Taiwan, with roughly half of market share by store count. The second largest player, Taiwan Family Mart, trails by roughly 20 percentage points in share. As the second largest merchandise sales channel in Taiwan, and the largest in 2020 due to COVID-19-related restrictions, 7-Eleven remains a crucial retail outlet for packaged food and beverage. We think President Chain Store has utilized its competitive advantages well to combat against rising threats from peers and competing channels.

Narrow-moat President Chain Store reported second-quarter results that slightly exceeded our estimates on revenue but were in line for net profit. Convenience store businesses in Taiwan and the Philippines, as well as Starbucks in Taiwan, were the main drivers of sales growth in the quarter. Operating margin improved moderately year on year thanks to better mix in the convenience store operations.

We attended an investor group discussion with the management of no-moat Uni-President Enterprises, or UPEC, in which the company laid out medium-term growth strategies for its major businesses, including narrow-moat President Chain Store, or PCSC, and no-moat Uni-President China, or UPC. The key message delivered was that revenue scale would be the primary target for UPEC across its major markets in food and retail businesses. We left our fair value estimates unchanged for the three companies under our coverage and consider Uni-President China shares to be moderately undervalued, whereas Uni-President Enterprises and President Chain Store shares are slightly overvalued.

Narrow-moat President Chain Store Corp.’s first-quarter results beat our estimates, as all major business segments recorded resilient sales growth and product mix improvement. We've raised our forecasts for 2023 revenue and net profit as well as five-year contributions from the 7-Eleven business in the Philippines. This lifts our fair value estimate to TWD 274 per share (from TWD 263), which implies 27 times 2023 price/earnings, broadly in line with the five-year average. The Philippines segment is set to add 30 basis points to the five-year net profit CAGR of 5.6%, but we think the current share price has already reflected this new growth driver. As a result, we still see PCSC’s shares as moderately overvalued.

7-Eleven is the market leader of convenience stores in Taiwan, with roughly half of market share by store count. The second largest player, Taiwan Family Mart, trails by roughly 20 percentage points in share. As the second largest merchandise sales channel in Taiwan, and the largest in 2020 due to COVID-19-related restrictions, 7-Eleven remains a crucial retail outlet for packaged food and beverage. We think President Chain Store has utilized its competitive advantages well to combat against rising threats from peers and competing channels.

No-moat Uni-President Enterprises hosted an annual results joint meeting to recap 2022 results for its various subsidiaries including narrow-moat President Chain Store and no-moat Uni-President China. A key focus was its growth strategies for Uni-President China. We keep our fair value estimates unchanged for the three companies and retain our view that Uni-President China’s current strategies could support high-single-digit sales growth for 2023, but we remain cautious over it continuing such growth rates in the medium term. 7-Eleven in the Philippines is considered a key medium-term growth driver for President Chain Store, consistent with our view.

Narrow-moat President Chain Store Corporation, or PCSC, reported fourth-quarter results that fell short of our estimates and Refinitiv consensus on the bottom line, despite exceeding our expectations on revenue. An increase in selling expenses was a major drag on operating and net profit. We expect inflationary pressure to continue weighing on various segments of PCSC this year, and that gross margin improvement would primarily be driven by a higher revenue mix of Starbucks Taiwan and Philippines' 7-Eleven. We do not expect margin for 7-Eleven Taiwan to expand, however. We also project a moderation in top-line growth in 2023 following the sharp rebound last year. Over the medium term, we project net margin to remain broadly stable as we do not anticipate material margin expansion drivers, while selling expenses should stay at the current level as PCSC invests to fend off competition. We maintain our fair value estimate at TWD 263 per share, which implies 28 times 2023 forward P/E, 7 times EV/EBITDA and 3.5% dividend yield. We think the stock is fairly valued and do not see near-term catalysts.

A previous version of this report included an incorrect fair value estimate.

7-Eleven is the market leader of convenience stores in Taiwan, with roughly half of market share by store count. The second largest player, Taiwan Family Mart, trails by roughly 20 percentage points in share. As the second largest merchandise sales channel in Taiwan, and the largest in 2020 due to COVID-19-related restrictions, 7-Eleven remains a crucial retail outlet for packaged food and beverage. We think President Chain Store has utilized its competitive advantages well to combat against rising threats from peers and competing channels.

Narrow-moat President Chain Store, or PCSC, reported second-quarter results with resilient top-line and profit year-on-year growth, thanks to 7-11 Taiwan store expansion and low base from last year. The bottom line fell short of our expectations due to rising operating costs amid the inflationary environment. Apart from 7-Eleven Taiwan, we believe PCSC is not able to entirely pass through increased costs for the other business segments. Net margin only improved 20 basis points sequentially and remained below its historical average. The recently announced acquisition of a stake in Carrefour Taiwan from Carrefour Group is set to increase investment income for PCSC, though we do not expect material impact to its fair value estimate. We slightly increased our fair value estimate to TWD 261 from TWD 259 due to time value of money, but we think the share price has priced in a profit recovery for the year, and we consider the stock moderately overvalued.

7-Eleven is the market leader of convenience stores in Taiwan, with roughly half of market share by store count. The second largest player, Taiwan Family Mart, trails by roughly 20 percentage points in share. As the second largest merchandise sales channel in Taiwan, and the largest in 2020 due to COVID-19-related restrictions, 7-Eleven remains a crucial retail outlet for packaged food and beverage. We think President Chain Store has utilized its competitive advantages well to combat against rising threats from peers and competing channels.

President Chain Store reported first-quarter 2022 results with a modest year-on-year growth in sales and mid-single-digit decline in net profit. Revenue growth was driven by most segments except convenience stores in Taiwan, whereas one-off non-operating loss due to a warehouse fire had lowered profit before tax by around TWD 100 million-TWD 200 million. The absence of lower tax rates versus 2021 also brought net margin lower for the quarter, to 3.8% (from 4.2% in first-quarter 2021). We reduced our 2022 revenue and profit assumptions given weaker 7-Eleven Taiwan sales in the first quarter and expect lower margins with more investments in marketing and digitalization. Higher profit sharing to franchisees is set to raise medium-term selling expenses. As a result, we lowered our fair value estimate to TWD 259 per share, from TWD 265 per share.

7-Eleven is the market leader of convenience stores in Taiwan, with roughly half of market share by store count. The second largest player, Taiwan Family Mart, trails by roughly 20 percentage points in share. As the second largest merchandise sales channel in Taiwan, and the largest in 2020 due to COVID-19-related restrictions, 7-Eleven remains a crucial retail outlet for packaged food and beverage. We think President Chain Store has utilized its competitive advantages well to combat against rising threats from peers and competing channels.

Narrow-moat President Chain Store reported full-year 2021 results that were largely consistent with our cautious forecasts, with full-year net income dropping to the lowest level since 2014. We expected only a modest rebound in top-line and bottom-line numbers in the fourth quarter following the trough in mid-2021, when coronavirus restrictions significantly limited foot traffic and dampened offline retail sales. Reported results reaffirmed our expectations. President Chain Store’s stock has trended toward our fair value estimates in recent months, most likely because investors expected subdued 2021 earnings. We retain our fair value estimate of TWD 265 and think the company’s shares are currently fairly valued. Our base-case scenario assumes a notable rebound in its Taiwan 7-Eleven business and mid-single-digit year-on-year sales growth for both its retail and others (comprised of Taiwan Starbucks) reported segments in 2022.

We transfer coverage of President Chain Store Corporation to a new analyst, maintaining our narrow moat rating but lowering our fair value estimate to TWD 265 per share from TWD 300 due to lower revenue and gross margin expectations as well as higher operating expenses estimates. We also lower our uncertainty rating to low from medium. The forward P/E of 25 times implied by our valuation is at the midpoint of its historical multiples range. We believe the stock is overvalued. Further disappointments in per-store-daily (PSD) sales growth and profitability in the Philippines 7-Eleven business could pose headwinds to its share price in the near term.