President Chain Store Earnings: Results In Line Thanks to Convenience Stores, Starbucks

Narrow-moat President Chain Store 2912 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.

PCSC acquired an additional 10.5% stake in Carrefour Taiwan at the end of June, bringing its holding to 30%. We update our medium-term forecasts to account for the raised income contribution. This represents roughly 1% of PCSC’s steady-state earnings before interest and tax. The company has financed the acquisition with debt, so the incremental profit is largely offset by higher interest expenses. While we have moderately raised 2023 revenue estimates, our net income projection is largely unchanged. We expect revenue growth to moderate in the second half of 2023 as the company cycles a high base.

We maintain our fair value estimate at TWD 274 per share, which implies a 27 times 2023 price/earnings ratio, 7 times enterprise value/EBITDA, and a 3.6% dividend yield. The implied earnings multiple is roughly in line with its five-year historical average. We think the company is fairly valued at its current share price.