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Revenues up 10.9% to Php1.6 Bil on back of store openings and positive SSSG. As discussed
earlier, PIZZAs revenues rose by 10.9% y/y to Php1.6 Bil in 3Q17. Growth was driven by the 100
opening of five new stores and SSSG of 1% in the same period (lower SSSG due to price increase
implemented in 3Q16). This brought 9M17 revenues to Php5.0 Bil, up by 17.7% and in line with
COL and consensus forecasts at 71.6% and 72.1% of full-year estimates, respectively. Although 90
PIZZAs 1% SSSG looks disappointing, this is still in line with our forecast as we expect SSSG for
the full year to end at 4.0%. For 9M17, PIZZAs SSSG stood at 6%. It was also able to add a total
of 16 new stores during 9M17 and is on track to beat its 20 store addition guidance this 2017. 80
9-Aug-17 9-Sep-17 9-Oct-17 9-Nov-17
Maintain BUY. We are maintaining our BUY rating on PIZZA with a fair value estimate of PIZZA PSEi
Php16.30/sh. At its current price of Php12.98/sh, PIZZA is trading at 23.4X 18E P/E, a discount
to the average P/E of domestic and global peers of around 27.0X to 29.0X We think that PIZZA
deserves to trade at least in line with its domestic and global peers given its similarly attractive
outlook. Note that we forecast a 13.6% EPS growth in 2018, broadly in line with its peers median ABSOLUTE PERFORMANCE
EPS growth of 15%.
1M 3M YTD
FORECAST SUMMARY
PIZZA -2.26 3.17 13.04
Year to December 31 (Php Mil) 2014 2015 2016 2017E 2018E 2019E
Revenues 4,697 5,244 5,946 6,971 7,958 8,903
PSEi 2.16 7.04 24.96
% change y/y 13.1 11.7 13.4 17.2 14.2 11.9
Gross profit 1,058 1,196 1,787 2,069 2,326 2,575
% change y/y 15.8 13.0 49.4 15.8 12.4 10.7
Gross margin (%) 22.5 22.8 30.1 29.7 29.2 28.9
MARKET DATA
EBITDA 695 864 1,197 1,394 1,564 1,736 Market Cap 19,907.17Mil
% change y/y 15.5 24.4 38.5 16.4 12.2 11.0
EBITDA margin (%) 14.8 16.5 20.1 20.0 19.6 19.5
Outstanding Shares 1,531.32Mil
Operating income 531 613 802 1,217 1,357 1,500 52 Wk Range 10.90 - 14.80
% change y/y 17.2 15.6 30.8 51.7 11.5 10.5 3Mo Ave Daily T/O 12.16Mil
Operating margin (%) 11.3 11.7 13.5 17.5 17.1 16.8
Net Income 429 480 759 749 851 954
% change y/y 16.9 11.7 58.3 -1.3 13.6 12.2
Net profit margin (%) 9.1 9.1 12.8 10.7 10.7 10.7
EPS (in Php) 1.16 0.62 0.88 0.49 0.56 0.62
% change y/y 16.0 -46.6 41.9 -44.4 13.6 12.2
RELATIVE VALUE
P/E(X) 11.2 20.9 14.8 26.5 23.4 20.8
P/BV(X) 3.8 6.3 3.3 5.1 4.3 3.7 ANDY DELA CRUZ
ROE(%) 30.2 19.4 20.8 17.5 17.0 16.4 RESEARCH ANALYST
Dividend Yield (%) 2.8 1.5 9.9 0.9 0.9 1.0 andy.delacruz@colfinancial.com
so urce: P IZZA
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EARNINGS ANALYSIS I PIZZA: RECURRING PROFITS UP 15.4% TO PHP519 MIL IN 9M17, IN LINE WITH COL AND
CONSENSUS
PIZZAs net income in 3Q17 surged by 127.6% y/y to Php132 Mil. However, excluding one-
time costs and gains related to the firms restructuring and its initial public offering in 2016,
recurring profits rose by 33.3% y/y to Php132 Mil. Growth was driven by better operating
expense management which led to a 320 bps y/y improvement in its operating profit margin
to 14.1%. Revenues for the quarter also grew by 10.9% y/y driven by its five new store additions
and 1.0% same store sales growth (SSSG).
PIZZAs third quarter performance brought its recurring net income for the first nine months
of 2017 to Php519 Mil, up 15.4% from 9M16s recurring net income of Php449 Mil. This is in
line with COL (69.3% of full year forecast) and consensus (66.9% of full-year) forecasts. Note
that PIZZAs fourth quarter profits usually account for around 30% of full-year results. Earnings
growth was driven by a 17.7% y/y increase in revenues to Php5.0 Bil. Moreover, operating
expenses declined by 5.8% y/y to Php645 Mil, resulting to the expansion of its OPM by 210 bps
y/y to 16.4%. This allowed operating income to jump by 35.3% y/y to Php820 Mil.
As discussed earlier, PIZZAs revenues rose by 10.9% y/y to Php1.6 Bil in 3Q17. Growth was
driven by the opening of five new stores and SSSG of 1% in the same period (lower SSSG
due to price increase implemented in 3Q16). This brought 9M17 revenues to Php5.0 Bil, up by
17.7% and in line with COL and consensus forecasts at 71.6% and 72.1% of full-year estimates,
respectively. Although PIZZAs 1% SSSG looks disappointing, this is still in line with our forecast
as we expect SSSG for the full year to end at 4.0%. For 9M17, PIZZAs SSSG stood at 6%. It
was also able to add a total of 16 new stores during 9M17 and is on track to beat its 20 store
addition guidance this 2017.
GPM pressured by rise in input costs but was more than offset
by opex management
PIZZAs GPM in 3Q17 declined by around 540 bps y/y to 27.8% due to the rise in its input costs.
Moreover, 3Q16 was a tough comparable given unusually low cheese prices in the period,
among others. Still, price increases and purchasing synergies with Century Pacific Group
helped protect its GPM from declining further impact. Its GPM for 9M17 likewise declined
albeit at a slower pace of 110 bps y/y to 29.3%.
On the positive side, PIZZAs operating expense declined by around 5.8% y/y in 9M17 as it was
able to manage its operating expenses. Consequently, even with the drop in GPM, OPM in
9M17 still increased by 210 bps to 16.4% and in turn led to a 35.3% y/y increase in operating
profits to Php820 Mil.
Maintain BUY
We are maintaining our BUY rating on PIZZA with a fair value estimate of Php16.30/sh. At its
current price of Php12.98/sh, PIZZA is trading at 23.4X 18E P/E, a discount to the average P/E of
domestic and global peers of around 27.0X to 29.0X We think that PIZZA deserves to trade at
least in line with its domestic and global peers given its similarly attractive outlook. Note that
we forecast a 13.6% EPS growth in 2018, broadly in line with its peers median EPS growth of
15%.
VALUATION ASSUMPTIONS
For DCF
Risk Premium 5.0%
Risk Free Rate 5.0%
Beta 0.90
Cost of Equity 9.5%
Cost of Debt 5.0%
Tax Rate 28.0%
WACC 8.0%
Terminal Growth Rate 4.0%
PV (2018E-2022E) 4,051
PV of Terminal Value 24,014
Enterprise value 28,065
Less: Net Debt 3,139
Equity Value 24,926
O/S 1,531
FV Estimate 16.30
HOLD
Stocks that have a HOLD rating have either 1) attractive fundamentals but expensive valuations 2) attractive valuations but near-term earnings outlook might be poor
or vulnerable to numerous risks. Given the said factors, the share price of the stock may perform merely in line or underperform in the market in the next six to twelve
months.
SELL
We dislike both the valuations and fundamentals of stocks with a SELL rating. We expect the share price to underperform in the next six to12 months.
IMPORTANT DISCLAIMER
Securities recommended, offered or sold by COL Financial Group, Inc. are subject to investment risks, including the possible loss of the principal amount invested.
Although information has been obtained from and is based upon sources we believe to be reliable, we do not guarantee its accuracy and said information may be
incomplete or condensed. All opinions and estimates constitute the judgment of COLs Equity Research Department as of the date of the report and are subject to change
without prior notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. COL Financial and/
or its employees not involved in the preparation of this report may have investments in securities of derivatives of the companies mentioned in this report and may trade
them in ways different from those discussed in this report.