PCSC: Convenience Stores in Taiwan and the Philippines Lift Third-Quarter Earnings

Narrow-moat President Chain Store Corporation 2912 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.

Revenue increased 8.8% year on year despite the high base from last year, thanks to resilience across most segments except the logistics business. 7-Eleven in Taiwan delivered mid-single-digit per store daily, or PSD, sales growth with favorable mix shift toward fresh food and fresh coffee. Store count growth is on track to reach our estimates of around 240 new stores for full-year 2023, which translates to 3.6% in store count growth. We expect 8.1% top-line increase for 7-Eleven Taiwan in 2023, following an 8.6% growth last year. The Starbucks business benefited from better foot traffic and delivered low-teens sales growth during the quarter. Operating profit for the segment also rose roughly 10% year on year, with per store daily sales exceeding prepandemic levels.

7-Eleven in the Philippines accounted for around 12% of PCSC’s net income in third quarter. Sales increased by low 20%, with a roughly equal split between PSD and store number growth. We think there is room for further store expansion in the country and this would be the major top-line growth driver for next two years. PSD growth is set to normalize to midsingle digits from 2024 onward, as the company strives for better merchandise mix. We raise PCSC’s retail segment revenue growth forecast in 2024 to 10% year on year, from 8% previously.