Asean Grocery Retail 18jul2017

Asian Insights SparX
ASEAN Grocery Retail Refer to important disclosures at the end of this report
DBS Group Research. Equity 18 Jul 2017
STI : 3,298.24 KLCI : 1,755.19

Will online grocery retail take off in SET : 1,574.09 JCI : 5,841.00
ASEAN? PCOMP : 7,934.50
Modern grocery retail continues to penetrate
Analyst
ASEAN-5 Alfie YEO +65 6682 3717
alfieyeo@dbs.com
Although online grocery retail is growing at a
faster rate, profitability remains an issue Andy SIM CFA +65 6682 3718
andysim@dbs.com
Retailers are incentivised to enhance operating
Namida ARTISPONG +66 2657 7833
scale, takeover by online giants may beckon
namidaa@th.dbsvickers.com
Top picks are SSG, DFI, CPALL, RRHI Tiesha PUTRI +6221 30034931
tiesha.narandha@id.dbsvickers.com
Modern grocery retail expected to grow further.
Modern grocery retail (MGR) has increased penetration in Regional Research Team
ASEAN-5 over the past two years. Overall value of MGR equityresearch@dbs.com
penetration in ASEAN-5 (US$) has increased to 30% of total
grocery retail sales (from 29.6% in 2015). MGR growth in STOCKS
ASEAN-5 is projected by Euromonitor to be at a five-year 12-mth
CAGR of 7.4%, reaching US$93b by 2021. Price Mkt Cap Target Price Performance (%)
LCY US$m LCY 3 mth 12 mth Rating
Larger players to strengthen scale. Larger players in
ASEAN have the advantage of gaining further operating Dairy Farm US$8.21 11,104 US$9.96 (5.2) 17.3 BUY
scale, in our view. Players with efficient operations and Sheng Siong Group S$0.99 1,087 S$1.20 1.0 9.4 BUY
backend logistics could present themselves as an attractive CP ALL Bt61.00 16,304 Bt75.00 0.8 17.9 BUY
target for takeover. Amazons buyout of Wholefoods is Robinsons Retail P87.00 2,375 P101 10.2 (1.0) BUY
testament that store network and backend logistics are Puregold Price Club P46.80 2,551 P41.90 10.1 1.9 HOLD
important for the online model. Matahari Putra Rp650 263 Rp450 (33.0) (59.5) FV
7-Eleven RM1.30 337 RM1.58* (23.1) (3.0) NR
Online grocery retail faces challenges. Within ASEAN, Bison Consolidated RM2.40 174 RM2.02* 13.2 N.A NR
online grocery retail has grown exponentially in Singapore, * Potential Target
but challenges abound. RedMart remains unprofitable and
faces challenges which include the convenience of shopping Source: Bloomberg Finance L.P., DBS Bank, DBSVI, DBSVT
in traditional stores, expensive last-mile delivery, an Closing price as of 17 Jul 2017
entrenched lifestyle of grocery shopping, and consumers
preference to physically pick the fresh produce in stores.
Our top picks are SSG, DFI, CPALL, RRHI. Our stock
universe currently trades at a prospective PE of 22x, at
-0.5SD of their 25x historical average. Top picks are SSG,
DFI, CPALL, and RRHI. All are expected to post earnings
growth led by margin expansion, with potential of re-rating
when earnings outperform.
ASIAN INSIGHTS VICKERS SECURITIES

ed: JLC / sa: JC, YM, PY
ASEAN Grocery Retail
The DBS Asian Insights SparX report is a deep dive look into thematic angles impacting
the longer term investment thesis for a sector, country or the region. We view this as an
ongoing conversation rather than a one off treatise on the topic, and invite feedback
from our readers, and in particular welcome follow on questions worthy of closer
examination.
Table of Contents
Executive Summary 4
Online grocery retail is growing but they wont be a threat to retailers as yet 6
Online penetration for retail in Southeast Asia is small, let alone for grocery retail 6
Singapores consumers are the most digitally ready 6
Singapore has the key factors for online grocery retail to grow 7
Although online grocery retail has grown exponentially, players are unprofitable as the market is in its infancy 7
In contrast, other countries with more developed online MGR markets have profitable online players 8
Singapore will be a test bed for future ASEAN online MGR 10
We believe online grocery retail will not be a threat to retailers over the next two years. 11
Online players in Singapore remain unprofitable as challenges abound 12

RedMart remains unprofitable despite rapid topline growth 12
Supermarket shopping is very convenient in Singapore and people are still shopping in stores 13
Online retail targets a certain consumer profile 14
Market needs to get used to paying for delivery cost or online retailers will need to subsidise 15
Groceries face a lower risk of disruption by online retail than non-food items 16
Flexibility options for customers add to costs 16
Click-and-collect may be more viable for now 16
How some online grocers failed 17
Last-mile logistics is expensive - Zyllem has closed 17
Retailers will continue growing while online grocery shopping finds its feet 18
Retailers will increase their store network 18
Scale drives down costs, improves margins 18
Staff costs will reduce with handpay, self-checkouts, and cash collection technology in stores 19
Macro fundamentals support the growth of MGR 22

The ASEAN grocery retail market has grown by 1.3% CAGR in the past two years 22
Convenience stores have led ASEANs MGR growth in the last two years 22
Industry-critical factors support growth of MGR in ASEAN-5 23
5-Year CAGR of 7.4% for MGR in ASEAN-5 till 2021 25
Convenience stores to drive MGR growth by 4% CAGR over the next five years 25
Companies with scale are the players in the sweet spot 27

Companies with a store network 27
Companies with a logistics network 27
Smaller players to play catch-up 28
A sizeable network and logistics chain may attract a takeover bid from an online player 28
Top picks are DFI, SSG, RRHI, CPALL 29

Page 2
Appendix Players in online grocery retail 32

Opentaste 32
Honestbee - Online concierge and delivery service 33
HappyFresh 34
GoFresh 35
FreshDirect 35
Country profiles 37
Singapore 37
Indonesia 40
Malaysia 43
Thailand 46
The Philippines 49
Stock profiles 52
Dairy Farm International 53
Sheng Siong Group 61
CP All Pcl 73
Robinsons Retail Holdings 80
Pure Gold Price Club 88
Matahari Putra Prima 96
7-Eleven Malaysia 105
Bison Consolidated 112

Page 3
Executive Summary
The changing face of modern grocery retail provides Industry-critical factors support growth MGR in ASEAN
opportunities for its retailers
Industry-critical factors are playing out in ASEAN. Industry-
Modern grocery retail in ASEAN continues to penetrate in critical factors of urbanisation, as well as a rising middle class
emerging markets Urbanisation and modernisation in and population in ASEAN-5, are supporting MGR penetration
developing markets are changing the way people buy their growth. The growth of MGR has outperformed that of
groceries. Developing markets, as they progress, will embrace traditional grocery retail at 1.3% vs -0.8% (CAGR) over the
modern grocery retail (MGR) even more, as evidenced by the past two years. MGR penetration is now 30% in ASEAN-5, up
increase in penetration of MGR to 30% of total grocery retail from 2015 (29.6%) and from 21.7% in 2007.
sales from 21.7% a decade ago. Modern store formats are
penetrating grocery retail beyond the traditional channels. Our differentiated view on online grocery retail in
We believe the rising middle class and each ASEAN ASEAN incentivizes larger players to grow
governments quest for economic development and progress
will help drive the growth and penetration of MGR in these Online grocery retail is not a threat but rather an opportunity
countries for a foreseeable future. to brick and mortar retailers to scale efficiently. We hold the
view that online grocery retail over the next two years will not
as well as in developed markets. By the same token, be a significant threat to ASEAN retailers. Retailers will
developed nations or cities in ASEAN which have seen a continue growing. Urbanisation and a rising middle class will
higher element of modern grocery retail is evolving as well. support proliferation of grocery retail stores. Meanwhile,
MGR in developed markets such as Singapore have seen new retailers will be incentivised to build up their scale, including
online channels and formats developing. MGR retailers are their logistical supply chains for extracting operating leverage,
competing on services, pricing, selection, and efficient as well as the potential of being taken over by an online player
backend operations to drive down costs. in the future.
Brick-and-mortar modern grocery retail in ASEAN is not dead. E-commerce will co-exist with MGR stores
While few people can consume meals at foodservice outlets
perpetually, consumers will somehow make use of the food Online grocery retail is here to stay. Even though online
retail channels, whether modern or traditional, as a source of grocery retail is still at its infancy and has several obstacles to
their food supply. Grocery retail is therefore not dead and in overcome, we expect it to gain traction. As the government
fact never will die, in our view. Consumer needs and wants continues to emphasise the use of technology in peoples daily
are ever-changing. This therefore is the cornerstone of lives and a younger generation gets increasingly tech-savvy -
modern grocery retails evolution. Modern grocery retailers online grocery retail has the potential to be a popular channel
that are able to identify areas of consumer demand will be in the future. This presents an opportunity for current brick-
the biggest beneficiaries. and-mortar grocers to jump on the bandwagon as they adapt
to evolving consumer behavior.
Consumers changing needs present opportunities for MGR
retailers. The modern grocery retail market is dynamic. Teething problems exist during online retails infancy in
Consumers needs and demands for food are ever-changing, ASEAN. Online players in Singapore remain unprofitable as
more so in a globalised world where physical and virtual challenges abound. Based on filed financial records, RedMart
connectivity are enabling consumers to be more demanding remains unprofitable compared to brick-and-mortar grocery
about food choices and at desired price points. These trends retailers because it lacks scale in both topline and cost.
provide opportunities for retailers to meet consumers Besides, shopping is very convenient in Singapore and people
expectations and, in the process, get ahead of the are still shopping in stores. The proliferation of HDB and mall
competition. Consumer sophistication, exposure to global supermarkets has driven shopping convenience. Many
products, rising wealth, and preference for healthier choices, Singaporeans do not live off the beaten path with the need
are driving demand for better food products. for delivery. Even though housing units are densely packed,
last-mile logistics is expensive and reducing delivery cost is key
Page 4
to profitable last-mile fulfillment. Fresh groceries have less Top picks are DFI, SSG, CPALL, and RRHI
disruption impact compared to non-food items in online sales
and consumers still want to choose their own food. We remain positive on the sector. The food retail sector is
generally defensive and has an attractive ROE from 10% to
Catalysts for the sector over 30%. Companies are projected to remain on a growth
trajectory, with earnings growth outpacing revenue growth in
Retailers must strive to gain scale and efficiency. With the our forecasts. We project two-year earnings CAGR of our
evolution of the sector and potential threat of online players, stock universe range from 5-21%, mainly driven by store
it is then up to brick-and-mortar grocery retailers to reduce openings and margin expansion.
operating costs to offer/deliver these food items to consumers
in a more profitable manner. We see an incentive for retailers ASEAN grocery retail is trading at >20x PE. Valuations of
to gain scale and operate efficiently. Better scale and ASEAN grocery retail stocks are not cheap at >20x
operational efficiency can boost margins, thanks to lower prospective PE, compared to global grocery retail peers.
costs, higher sales, and cashflow matrices. Operational scale Nonetheless, they offer investors defensive earnings of a non-
could offer higher product margins on bulk volumes and cyclical nature, net cash balance, cash generation capabilities,
defrayment of fixed operational/logistics costs, while earnings growth and dividend yield for selected stocks. There
efficiency could improve sales per store/square feet is also potential for some of these stocks to re-rate should
matrices/headcount, inventory and cashflow matrices. earnings outperform.
We believe larger listed companies are at the forefront to Our top picks are SSG, DFI, CPALL, RRHI. Our picks for the
grow their scale further as opposed to smaller players which sector are SSG and DFI in Singapore, CPALL in Thailand, and
lack resources to implement initiatives to gain competitive RRHI in the Philippines. Earnings growth is expected to outpace
advantage. Operating an efficient distribution chain, for revenue growth on margin expansion. Margin expansion trend
example, drives down operating expenditure and may attract for SSG is expected to continue on a shift to more fresh food
a takeover bid by online grocery players. and better supplier rebates. We expect DFIs margin to post
improvement on rationalisation of loss-making stores,
A possible takeover by internet giants await. While it remains especially in Singapore. RRHIs margin is also expected to trend
unclear why Amazon bought Wholefoods for US$13.7b, we up on price adjustments and closure of loss-making stores.
believe online retailers could be going the omni-channel route CPALL has both network and margin expansion, fuelled by
in MGR. Listed Asian companies which are well operated, with penetration in Thailand and the discontinuation of discount
some scale and efficiently-backed operations, could be coupons to big-basket customers.
potential acquisition targets of internet retailers.
Page 5
Online grocery retail is growing but it wont be a threat to retailers as yet

Online penetration for retail in Southeast Asia is small, Singapores consumers are the most digitally ready
let alone for grocery retail
Singapore has the highest proportion of digital consumers.
Southeast Asias online retail market is fast growing but The highest proportion of digital consumers amongst its
remains small. According to Bain & Company (Bain), the population in ASEAN can be found in Singapore. Singapore
online retail market is worth US$6b in Southeast Asia but boasts high internet and mobile broadband penetration rates.
represents just 3% of total retail sales. Southeast Asias online This, along with various e-commerce websites, have fueled
retail market is not as developed as those in markets such as the growth of e-commerce in Singapore.
China and USA, where online retail accounts for 14% of total
retail, and is worthUS$293b and US$270b, respectively. Proportion of online consumers in ASEAN
However, Bain projects that online retail sales in Southeast % of digital consumers
Asia will grow exponentially to US$70b by 2020. Even though 60%
there are about 250m smartphone users aged 16 and above
50%
in Southeast Asia, only 100m engage in online transactions,
Bain estimates. 40%
30%
Majority of consumers in Southeast Asia are not yet
digital-ready 20%
Digital consumers
who search for 10%
products online
and purchase 0%
online Indonesia Philippines Vietnam Thailand Malaysia Singapore
25%
Source: Bain & Company, DBS Bank
High internet and mobile broadband penetration rates in

Digital consumers
Singapore
who search for Consumers who
products online are not yet digital Internet penetration Mobile Broadband
but do not 62% penetration
purchase online
13% Indonesia 34% 65%
Source: Bain & Company, DBS Bank Philippines 53% 65%

Thailand 60% 131%
ASEAN is not yet ready for online retail. Most of Southeast Asia Malaysia 68% 104%
is showing signs of early-stage e-commerce adoption, Singapore 81% 146%
according to Bain. Southeast Asias diversity is a challenge for Vietnam 52% 40%
e-commerce success; different ethnicities, languages, consumer Source: Nielsen, GSMA Intelligence, DBS Bank
preferences, and regulations are some of the challenges
hindering the growth of e-commerce. Most of Southeast Asia Singapore has high online shopping adoption rate. According
is still lacking a solid regional payment and logistics to the Singapore government's open data portal the Annual
infrastructure necessary for the proliferation of e-commerce. Survey on Infocomm Usage in Households conducted by IDA
Consumers continue to distrust e-commerce platforms, are since the 1990s showed that the proportion of Singapore
concerned about the lack of touch and, feel inherent in digital residents who bought or ordered goods and services or
commerce, and have trouble locating the products they want. conducted transactions over the Internet before was 57% in
2013 and 47% in 2014. About 75% of those between the
age of 25-34 years are online shoppers.
Page 6
Close to 40% of Singapore aged 15 and above shopped Market factors for online grocery retail success
online in 2014
100% Internet and mobile penetration rates
90%
High Internet adoption, especially among young Gen-Z and
80%
Millennials, will help online MGR gain traction
70%
Population density and wealth
60%
50% Densely-populated, centrally- located urban areas enable better
40% cost efficiency for deliveries (labour and transit costs)
30% Immense growth potential in e-grocery development in areas
20% with increasingly affluent populations
10%
Consumer preference and lifestyle
0%
15 to 24 years 25 to 34 years 35 to 49 years 50 to 59 years 60 and above Desire for convenience and efficiency because of long working
Online shoppers Rest of age group hours and busy lifestyles
Source: data.gov.sg, DBS Bank Source: DBS Bank
Singapore has the key factors for online grocery retail to Although online grocery retail has grown exponentially,
grow players are unprofitable as the market is in its infancy
Factors affecting growth in online grocery penetration. We Online grocery retails share of the market projected to grow
see three key factors driving the growth of online grocery to 5% by 2020, from 3% in 2016. Euromonitor estimates
retail: 1) Internet and mobile penetration rates; 2) population that Singapores online grocery retail market was worth
density and wealth of countries; 3) consumer preferences and S$96m in 2016. Based on Singapores MGR market size of
lifestyle. S$4.3b in 2016, online grocery retails market share of total
grocery retail sales is 3%. The online grocery retail market has
A high Internet adoption and mobile penetration rate, grown at a CAGR of 38% over the past five years. According
especially among young Gen-Z and Millennials, should help to The Institute of Grocery Distributions (IGD) projection,
online grocery gain traction. Countries with high population online grocery sales is forecast to reach S$500m by 2020.
density in urban areas will enable better cost efficiency for
deliveries (especially for labour and transit costs). We believe Singapore online grocery retail market was S$96m in
there is growth potential in e-grocery development in areas 2016
with an increasingly affluent population as well. A societys
S $m Cold Storage NTUC Fairprice RedMart Sheng Siong
desire for convenience and efficiency because of long
100
working hours and busy lifestyles will also drive the increase
in online grocery retail. The Singapore market has all of the
80
above.
60
40
20
0
2010 2011 2012 2013 2014 2015 2016
Source: Euromonitor, DBS Bank
Page 7
Online grocery retail is at its infancy in Singapore. Singapores In contrast, other countries with more developed online
largest online player RedMart only started four years ago and MGR markets have profitable online players
has yet to turn in a core profit. The online business model, in
our view, is still trying to find the right balance between According to data from Kantar Worldpanel, markets with the
gaining market share and becoming profitable. Core losses as highest grocery penetration rates are South Korea, Japan,
at FY16 stood at S$51m for RedMart, based on financial France, and the UK. South Korea has clearly led the way with
records filed. high connectivity, strong digital infrastructure, and free
delivery.
Even Ocado took 15 years to break even. The UKs leading
online grocery retailer Ocado, which was founded in 2000 and
delivered groceries for Waitrose, took 15 years to break even. It
recorded 12.5m headline losses in FY13 but showed headline
profit turnaround of 7.2m in FY14, followed by 12m each
for FY15 and FY16. If not managed properly, online grocers
can fail, as seen by the examples of HomeGrocer and Webvan.
Online grocery penetration rate by country
Source: Kantar Worldpanel
Page 8
Why some countries are more successful in online grocery 2) Japan

retail Japans smartphone penetration is high and the country has a
robust online environment. Japan has the second-highest
1) South Korea online grocery retail penetration of 7.2%. The countrys
South Korea has a highly digitised economy. As seen in the smartphone penetration is also rising. As at the end of 2014,
chart, South Korea has the highest online grocery retail 64.2% of all households in Japan have a smartphone. Thanks
penetration at 16.6%, with almost 100% of consumers aged to robust online channels, consumers have access to
between 10 and 40 shopping online. South Koreas online information which can help them make purchase decisions.
business is robust, with consumers paying low delivery costs. Retailers are able to reach out to consumers through these
This is largely due to its highly digitalised economy which is online channels as well, fuelling online grocery retail
constantly developing new technologies. South Korea boast penetration. There are at least nine online grocery retail
one of the highest Internet speeds in the world, has a high players in Japan including HealthyTokyo.com, SuperOrganic
smartphone penetration rate of 85%, and leading financial Foods, Hilo Market, Tengu Natural Foods, Japan Square, The
payment systems that make online purchases easier and safer Flying Pig, Enoteca, The Meat Guy, and the Foreign Buyers
for both retailers and consumers. Club.
Koreans are tech-savvy and known to be extremely willing to 3) France

adopt the latest technologies. The capital Seoul is densely The drive-through model is popular with the French. Frances
populated with 25.6m South Koreans out of the countrys online grocery retail penetration of 5.3% is largely driven by
total of 51m living in the Seoul Metropolitan area, creating the increase in popularity of the Click-and-Drive model. The
a critical mass for online grocery retail. There are no wet Click-and-Drive format has grown at a CAGR of 98% from
markets unlike Singapore which makes for easier transition 96 stores in 2010 to 2,903 in 2016 - according to data by
from shopping at supermarkets to online channels. Nielsen. Nielsen also observed that 80% of French
households have access to a Click-and-Drive less than 15
Household clusters are also getting smaller at 2.37 persons minutes from home, against 75% for hypermarkets.
per household in 2016 compared to 2.91 in 2000, based on Consumers make their purchases online and collect the items
statistics by the Seoul Metropolitan Government. Smaller by driving through the physical stores. Consumers like to
households, especially single-person households, would buy shop at hypermarkets as they sell a large range of products
less bulk items while seeking shopping convenience. Lastly, and the Click-and-Drive model makes shopping at
Koreans are used to shopping from home, having an already hypermarkets more convenient for consumers at no extra
established TV home shopping market (introduced in 1995). cost. This model is more popular among families with young
children.
There are at least five major players and excellent
logistics/parcel delivery services to support shopping from Number of Click-and-Drive/Services Drives in France
home. South Koreas online retailers use a myriad of 1137
strategies to increase their sales. These include setting up Click & Drive Services Drives
online chat-rooms; reaching out to consumers with e-

newsletters and promotions through email; as well as placing 642 591
advertisements on social media channels. The Korea Online 555
467
Shopping Association (KOLSA) reported that mobile shopping
sales grew 45.7% y-o-y to 35.5t won (US$30.9b) in 2016. 168
83 70
Source: Nielsen TradeDimensions, DBS Bank
Page 9
4) UK Key online players in ASEAN

The UK has a very developed MGR scene. With a population Online grocery Is online grocery shopping
of 64m in the United Kingdom, the grocery retail scene is very players/portals popular with consumers?
developed and competitive. There are more than eight Singapore Cold Storage, NTUC Gaining some traction,
established chain-store grocers across different formats Fairprice, Sheng Siong, but most still shop in the
including discounters and online channels. However, while RedMart, Opentaste, stores
the online penetration of market in the UK may be the third- Honestbee, Gofresh
largest globally, the environment is challenging for online Malaysia HappyFresh, Tesco, Serve very niche market as
retailers to operate in. Online retailers struggling with PasarTap Delivery, brick-and-mortar grocery
delivering products in a profitable manner. As a result, online Redtick, BIGbox Asia, shopping continues to be
retailers have imposed minimum spending and delivery fees SAMs Groceria favoured by most
on consumers. It is vital for retailers to improve the delivery
Thailand BIG C, Makro, Tesco Lotus Gaining popularity but
logistic issue for online retailing to take off. Several online
may take time to be a big
retailers including Sainsburys, AmazonFresh, and Chop Chop
hit. Current contribution
currently provide same-day delivery in a bid to attract more
to sales is <5%.
consumers. The UK has an online MGR penetration of 6.9%
(7.3% in 2017).
Indonesia HappyFresh, Contribution to total
Klikindomaret.com, grocery sales is small but
Key online grocery retailers
Ngemart, Go Mart, growing rapidly, including
Hypermart Online, the online-to-offline
USA FreshDirect, Peapod, Relay Foods, Walmart,
Kesupermarket.com (O2O) channel.
AmazonFresh, Instacart, Google, Soap.com, Postmates
Philippines PureGold, Walter Mart The proportion of online
Europe Tesco, Carrefour, LeShop.ch, Ahold, mySupermarket,
grocery shopping in the
ShopWings
Philippines is small.
UK Ocado
Product assortment, as
Japan HealthyTokyo.com, SuperOrganic Foods, Hilo Market,
well as areas serviced are
Tengu Natural Foods, Japan Square, The Flying Pig,
still very limited
Enoteca, The Meat Guy, The Foreign Buyers Club
Korea E-mart, Home plus
Source: Companies, DBS Bank
Australia Coles, Aussie Farmers Direct, Woolworths,
GroceryRun,
The addressable market for MGR is huge outside Singapore,
India Localbanya.com, PepperTap, Flipkart, Grofers,
but the rest of ASEAN is not ready for online grocery retail.
zopnow, Snapdeal, Bigbasket,
However, neighbouring ASEAN markets which are larger will
China Chaoshi.tmall.com, JD.com, Taobao require time for online grocery retail to develop and adoption
Source: DBS Bank to take off. There are more than 630m/460m people in
Southeast Asia/ASEAN-5 outside of Singapore. Total MGR
Singapore will be a test bed for future ASEAN online value, including traditional channels in ASEAN-5 ex Singapore,
MGR is worth US$217.7b. These countries are generally not ready
for online grocery retail as factors such as Internet/mobile
While Singapore is ready for online MGR, the market is small. penetration rates; population density; and consumer
Singapore has a very small addressable market of 5.5m people preferences and lifestyle are yet to be in play. Markets like
for online players. This is less than 1% of the entire Southeast Vietnam and Malaysia are still in their infancy and only have
Asian population. Comparatively, the UK, where Ocado has online grocery penetration of under 1%.
found success, has a population of 64m, equivalent to
Thailands population. Therefore, Singapore, while small, is
most ready for online grocery retail in Southeast Asia.
Page 10
ASEAN-5s population grew 2.2% last year We believe online grocery retail will not be a threat to
2015 2016 % chg retailers over the next two years.
Indonesia 255 258 1.2%
Philippines 100 103 3.0% Online grocery retail is here to stay Even though online
65 4.6% grocery retail is still in its infancy and has several obstacles to
Thailand 68
overcome, we expect it to gain traction. As the government
Malaysia 30 31 3.3%
continues to emphasise the use of technology in peoples daily
Singapore 5.5 5.6 1.3%
lives and thanks to an increasingly tech-savvy younger
ASEAN-5 455.5 465.6 2.2%
generation - online grocery retail has the potential to be a
Vietnam 92 95 3.3% popular channel in the future. This presents an opportunity for
Myanmar 54 57 5.6% current brick-and-mortar grocers to jump on the bandwagon
Cambodia 15.6 16 2.6% as they adapt to evolving consumer behavior.
Laos 6.8 7 2.9%
Brunei 0.42 0.44 4.8% but will take time to develop in Singapore. We maintain
East Timor 1.2 1.3 8.4% our view that online grocery retail will take time to become
Total SEA 625.52 642.34 2.7% prevalent and overtake grocery retail stores, at least in
Source: CEIC, CIA World Factbook, Singstats, DBS Bank Singapore.
Page 11
Online players in Singapore remain unprofitable as challenges abound

RedMart remains unprofitable despite rapid topline RedMart requires operational scale in both topline and cost.
growth RedMarts annual revenue of S$82m implies daily sales of
S$225,000, compared to NTUC Fairprices S$9.4m and Sheng
High fulfillment costs. Profitability is a challenge for online Siongs S$2.2m. It has relatively lower gross margins (of below
grocery retailers due to the high fulfillment costs. Online 20%), way behind NTUC Fairprice (22%), Sheng Siong (26%),
grocery retailers are burdened with additional costs stemming and Dairy Farm (30%).
from the handling, selling, and delivery of the products.
Consumers do not welcome the idea of paying high delivery Cost structure of NTUC, SSG, and DFI
fees as they can easily purchase the products on their own Admin and
from the many supermarkets and convenience stores dotted others
15%
around the island. Online grocery retailers can compete on
delivery cost charged to consumers by either searching for
ways to improve efficiency or absorb the cost. Staff costs
Selling and 38%
distribution
RedMart is unprofitable, compared to retailers, despite 13%
growing revenues by 41x over 4 short years. Based on

financials filed with Singapores ACRA, RedMart has
exponentially grown its revenue base by 41x to S$82m (FYE
Jun16) over 4 short years. Conventional wisdom would point
to profitability on the back operating leverage especially with Rental costs Depreciation &
27% amortisation
such phenomenal topline growth trajectory. It is however not a 7%
profitable operation. Operating losses also ballooned from Source: Companies, DBS Bank
S$2m to S$50m over the same period. It may be gaining
ground in Singapores grocery retail scene, but it has yet to RedMarts topline run rate needs to improve. Ocado takes
turn profitable. 230,000 orders and makes 176 deliveries per week with
average order size of 108.1. In contrast, we estimate that
RedMarts financials RedMart currently receives just over 70,000 orders per week,
Jun S$m 2013 2014 2015 2016 with an average order size of S$100. We believe building e-
Revenue 2.0 12.9 34.6 82.0 commerce scale will drive down costs and improve profitability
Gross profit 0.4 2.3 5.3 13.9 which is currently insufficient to cover costs.
Operating profit (2.0) (10.1) (26.8) (50.2)
Net profit (2.6) (40.3) (95.6) 47.7
Cost structure of RedMart
Net profit (Pre-ex) (2.0) (10.1) (25.8) (49.1)
Gross margin (%) 17.9 18.1 15.4 17.0 Operating leases
9%
Wkg cap cashflow 0.0 1.4 2.1 10.8
Admin and
Operating cashflow (1.9) (7.5) (23.4) (37.4) others
15%
Opex % sales 118% 97% 94% 79%
Distribution 37% 34% 44% 35%
Marketing & Selling 19% 11% 7% 7% Selling and Staff costs
distribution 52%
Technology 12% 8% 14% 11%
7%
Admin 50% 44% 29% 25%
Avg. Collection days n/a 10.0 7.6 30.7
Avg. Payment days n/a 79.1 69.9 253.8 Technology costs
Avg. Inventory days n/a 52.0 30.5 109.5 15%
Depreciation &
*note: Avg collection/ Payment/ Inventory days based on starting and amortisation
closing balance of respective items. 2%
Source: RedMart ACRA filings, DBS Bank Source: Companies, DBS Bank
Page 12
RedMart has significantly higher cost structure. Our cost up grocery items whenever they want. Needless to say, those
analysis of RedMart against the three incumbent supermarket with their own private transportation can pick up grocery
operators in Singapore (NTUC Fairprice, Sheng Siong, and items wherever they are or travel convenient locations to pick
DFI) shows that due to a lack of scale, RedMarts cost is up grocery items.
relatively higher. Most cost categories are higher as a
percentage of sales and insufficient to cover gross profit. Supermarkets and convenience stores everywhere. According
to Euromonitor International, there was a staggering 946
Scenario analysis: RedMart needs revenue of S$260m to supermarkets, hypermarkets, and convenience stores in this
S$380m to achieve breakeven. Assuming RedMarts small island as of 2016. It is convenient for consumers to
operating cost remains constant at S$65m and gross margins purchase their groceries as either a supermarket or
remain at 17%, it would take revenue of c.S$380m for convenience store is just round the corner. Consumers do not
RedMart to achieve operating- profit breakeven. However, if see the need to make their grocery purchases online, saving
gross margins were 25%, it would need S$260m in revenue on delivery fees, as they can simply grab the groceries from
to breakeven at operating costs of S$65m. We estimate that the physical stores on their way home from work or school.
implies about 3.2x to 4.6x from its FYE Jun16 revenue of An exception will be the purchase of bulky items such as
S$82m. packaged rice and cooking oil, which consumers would prefer
to purchase online and have them delivered.
RedMart cost as a % of sales vs incumbents in Singapore
932 convenience stores and supermarket outlets in 2016
NTUC, SSG, DFI Redmart
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
COGS Staff costs Depreciation Rental costs Selling and Admin and Technology
distribution other costs costs
costs
Supermarket shopping is very convenient in Singapore
and people are still shopping in stores Proliferation of HDB and mall supermarkets makes shopping
convenient. HDB constantly makes supermarket shops available
Grocery shopping is very convenient in Singapore. Singapore for businesses to lease. Apart from providing public housing to
is a compact city with an efficient transport system. Most 80% of Singaporeans, HDB also leases commercial real estate
commuters are able to travel to most parts of the island to businesses, which enhances amenities for residents in these
conveniently, thanks to a robust and improving public areas. HDB consistently puts up properties minimart,
transport system. As such, people have high mobility. supermarket, eating houses, and shops in residential estates
Singapores public rail system, based on LTAs statistics, sees for bidding. HDBs township planning ensures that there are
an average of 2.9m commuters travelling within its network sufficient amenities for residents, especially food-related ones,
every day. By the same token, grocery retail outlets of various in new and old estates which it develops. The needs of
formats are conveniently located near public transport hubs, residents of every age are catered to, regardless of the
thanks to the Housing & Development Boards (HDB) plans to residents tech-savviness. Grocery shops, supermarkets, and
have supermarkets at their commercial properties located in minimarts are hence conveniently located in the heartlands for
suburban town centres and suburban malls always having a residents to visit.
supermarket element in their tenant mix. Commuters
travelling through these town centres can conveniently pick
Page 13
Close to 10 HDB properties (for grocery retail) are available for lease in the next 6 months
S/N Estate Precinct Name Block Street Name Commercial Units
Minimart Supermarket
1 Bukit Batok Skyline @ Bt Batok 296A Bukit Batok Street 22 1 -
2 Punggol East Waterway Sundew 660A Edgedale Plains - 1
3 Queenstown Ghim Moh Edge 224A Ghim Moh Link - 1
4 Sembawang EastLace @ Canberra 115 Canberra Walk 1 -
5 Sengkang Anchorvale Parkview 338 Anchorvale Crescent - 1
6 Sengkang Fernvale Riverwalk 417 Fernvale Link - 1
7 Woodlands Admiralty Flora 691 Woodlands Drive 73 - 1
8 Woodlands Woodlands Glen 573 Woodlands Drive 16 - 1
9 Toa Payoh Toa Payoh Crest 131 Lorong 1 Toa Payoh 1 -
Total 3 6
Source: Place2lease, DBS Bank
Supermarket shopping a lifestyle. MGR stores in Singapore Many do not live off the beaten path in Singapore with the
dominate online grocery retail, boasting sales of S$4.3b need for delivery. Singapore is an urbanised country with a
compared to the latters S$96m. Evidently, even though there high MGR density and Singapore has an efficient public
are online platforms, consumers in Singapore continue transport system for people to do grocery shopping in stores.
shopping in stores. Many people still see grocery shopping in As many as 80% live in HDB flats which are conveniently
supermarkets as an activity that they enjoy doing on a daily or located, with no need for grocery delivery. It is convenient to
weekly basis. Shopping in a supermarket allows them to touch, shop at the physical stores and they get to save on the delivery
feel, and inspect the product before purchase, and this is fees as well. Online grocery retail does appeal to consumers
important, especially for fresh produce. These is an experience who do not have the time to make their way down to the
that online retail cannot offer. physical stores, stay far away from the nearest grocer, enjoy
the convenience of online retailing, or have heavy and bulky
Online retail targets a certain consumer profile purchases to make water, beer, rice etc.
Online customers have a certain profile. We scope out the Profile of online shoppers differs from store shoppers
profile of grocery shoppers who are open to using online Online shoppers Store shoppers
channels as a means to shop. These consumers typically already Selection Consumers already Choice and freedom to
know what they want with no need to browse and select know what they choose all selection
items especially fresh food , can afford to await delivery, do want especially fresh food
not mind paying a delivery charge, are buying heavy or bulky Wait time Can afford to Get purchase
items, live off the beaten path, and have no time or choose not await delivery immediately
to get out of their house. Delivery Do not mind No delivery charge
charge paying a delivery applicable
Pros and cons of online grocery shopping charge if any
Positives Negatives Heavy or Wants delivery to More difficult to manage
Shop any time Hassle of signing up/in bulky items do the heavy lifting bulky or heavy items
Time savings Website navigation Location Live off the beaten Have a store nearby or at
Chore avoidance Trouble with path a conveniently located
substitutions/returns place along the way
Wide range of product options Delivery coordination Convenience No time or do not Love or do not mind
Worries about freshness want to get out of supermarket shopping
Source: DBS Bank the house
Source: DBS Bank
Page 14
Market needs to get used to paying for delivery cost or intact. To this end, online grocers throw in discounts,
online retailers will need to subsidise promotions, and bundle offers to increase basket sizes. That
will, however, eat into an online grocers margins unless it is
Delivery cost an issue. Delivery cost is a major obstacle able to seek further rebates from its suppliers.
preventing many consumers from purchasing groceries online.
Consumers may baulk at the idea of paying for delivery cost Somebody needs to subsidise fulfillment costs. The difference
when purchasing groceries online as they can easily pick up between online retailing and store retailing is in last-mile
groceries from a nearby supermarket. They may also be logistics. The former is fulfilled by the seller, while the latter is
concerned with proper storage of chilled food items during borne by the consumer. Logistics costs and unfavourable
delivery, preferring to pick up these items in nearby grocery economics, including orders, pricing, and ticket sizes can
stores as these are usually low-ticket items and easy to make online players like Ocado remain unprofitable for a long
transport. This is in contrast to shopping for big items at, say, time. For some supermarket operators, leveraging on their
IKEA where the consumers have no choice but to pay for store network and fulfilling delivery from individual stores can
delivery. As for online retailers such as Taobao and Qoo10, be more profitable than delivering from a central distribution
they offer a wide variety of products at lower prices with no centre. Pure-play online grocery players will not have this
freshness limitations. Consumers therefore do not see the need benefit since they have no stores or have outsourced cold-
to head down to the stores as they can simply purchase the chain locations for a hub-and-spoke arrangement.
products with a click. Online grocery retailers, on the other Meanwhile, logistics costs will continue to play a key role in
hand, will have to look into reducing delivery costs to entice the profitability of online grocery retail.
more consumers to switch to online grocery retailing.
Delivery to home still the preferred means of fulfillment. A
Delivery is not free recent survey by Nielsen, showed that 85% of grocery
Online grocery retailers Delivery fees shoppers who are already using or are willing to shop
RedMart S$49 S$7 delivery fee through online channels prefer delivery to their homes as
> S$49 Free delivery their preferred choice of fulfillment. In fact, delivery to homes
NTUC Fairprice < S$99 S$7 delivery fee
is the most preferred choice of fulfillment for online grocery
S$99 Free delivery
shoppers. All alternate means of fulfilment were significantly
lower amongst the sample of online grocery shoppers
Giant < S$60 S$12 delivery fee
surveyed.
S$60 S$7 delivery fee
Cold Storage < S$60 S$12 delivery fee
Most online grocery shoppers prefer delivery to their
S$60 S$7 delivery fee
homes
OpenTaste < S$35 S$4.95 delivery fee
S$35 Free delivery 100%
E-mart < S$30 S$3 delivery fee 90%
Ocado < 75 2.99 - 6.99 delivery fee 70%
75 Free delivery 60%
Gofresh < S$60 S$15 delivery fee 50%

30%
20%
Minimum online purchase to discourage low value orders. In 10%
order to keep online grocery retailing profitable, many online 0%

Deliver to home Pick up inside store Drive through Pick up outside
grocery retailers have imposed minimum purchases for Already using Willing to use Unwilling to use
store
consumers to qualify for free delivery or lower delivery fees.
Source: Nielsen, DBS Bank
These retailers recognise that delivering single items or low-
value purchases will erode their margins and be unprofitable
for their online business. Imposing minimum orders will ensure
that their fulfillment costs are covered and their profitability
Page 15
Cold-chain logistics will be relatively more expensive. Service Flexibility options for customers add to costs
providers need cold-chain management to preserve freshness,
adding to costs. Non-fresh grocery items such as water, Online players are currently in a catch-22 situation. Customer
detergent, canned food, pasta, toiletries, etc with no service includes sales guarantees and replacements, flexibility
requirement for refrigeration have longer shelf life. Frozen and for immediate and appointed delivery times; otherwise,
fresh food however remains a challenge and cold-chain consumers may be reluctant to buy online. These promises add
logistics is necessary to preserve freshness. Unlike non-food to costs, including that for double delivery, until the business
items in e-commerce, product failure in fresh food has some gains scale. It is then up to the businesses to execute
impact on food safety. Service providers need to prevent food efficiently. With scale, online players are then able to provide
products from being contaminated during delivery. Delivery such customer services profitably.
costs will hence be more significant to for online grocery
players. Logistics costs will be higher for online players in cities Click-and-collect may be more viable for now
that sprawl across a large area and/or have an expensive
transport system. Customers undertake delivery costs under Click-and-collect
model. Click-and-collect is a grocery retail model highly
Groceries face a lower risk of disruption by online retail popular in France and the UK. Under this model, consumers
compared to non-food items submit their orders online and collect their purchases from a
collection point. The collection point may or may not be at the
The challenge is in preserving freshness. Shoppers want to grocery retail store. It may be a more viable model for
choose their own fresh groceries. Nielsens Global Connected businesses because it slashes delivery costs for the online
Commerce Survey in 3Q 2016 showed that grocery items rank retailer. This model is being considered by supermarkets as it is
among the lowest for online purchase amongst 18 durables more viable for profitability and helps reduce the costs incurred
and consumables product and service categories. Fresh for preserving freshness, logistics, fuel, traffic, cold trucks, etc.
groceries rank the highest, with 44% of shoppers preferring to
buy more often in-store. Evidently, grocery consumers rank the Carrefour Drive pick-up point in Belgium
ability to select their own fresh products highly. Online players
will hence have to gain shoppers trust and prove that they can
deliver fresh grocery items to customers or risk losing sales in
this product category. For this reason, we believe that fresh
food will face less online disruption than non-food items.
Consumers most averse to purchasing fresh groceries

online
% 69
70 62
58
60
49
50 45 45
41 38 38
37 35
40 33 33 30
29 26
30 25 23
20
10 Source: Nielsen, DBS Bank
0
Source: Nielsen, DBS Bank
Page 16
Baby and family items dominate Click-and-Drive in Servicing the wrong area. Webvan expanded into cities with
France (Click-and-Drive weight of each product category) low population density, which resulted in relatively high
14.0%
delivery costs that made fulfilment unprofitable. Its trucks were
13.1%
12.2%
11.5% 11.2% 11.2% making trips to areas with low order count/ticket size. These
12.0%
10.0% 9.9% 9.8% made delivery trips and trucking costs inefficient, leading to
10.0% 9.0% 8.7%
poor profitability.
8.0%
6.0%
4.0%
Owned infrastructure, no leverage on third parties. Webvan
4.0% had its fully owned infrastructure from warehousing to the
2.0% picking of orders, delivery and customer service. It didnt
0.0% leverage on third-party suppliers such as brick-and-mortar
grocery stores and concentrated their resources on the delivery
and customer service aspects. Grocers such as Ocado and
Peapod leverage on grocery stores and started warehouses
Source: Nielsen, DBS Bank when it made economic sense.
How some online grocers failed Last-mile logistics is expensive - Zyllem has closed
Webvan operated for five years. Webvan was an online grocery Last-mile logistics is expensive. Last-mile logistics firm Zyllem
retailer founded in the USA in 1996 but made several mistakes stopped providing delivery services on 7 September 2016 in
which contributed to its downfall including moving into Singapore. Zyllem had up to 5,000 drivers and was growing at
online too early and eventual bankruptcy in 2001. In the a double-digit rate month-on-month. Costly delivery services,
process, Webvan drained c.US$800m in venture capital and which led to poor profitability, resulted in its closure. The
IPO proceeds. delivery services market in Singapore is competitive and players
compete on every measure, from prices to delivery time. High
Wrong pricing and target audience. By offering a wide range logistics cost including vehicle and labour costs, along with the
of high-quality goods at low prices, as well as home delivery competitive market pricing, pose challenges to logistics players
services, the company turned in low profit margins. The low Similarly, high logistics costs will pose a challenge for online
prices failed to attract upmarket consumers and it was left with grocery players when they try to make their business profitable.
consumers who bought low-margin products.
More viable for retailers with own backend logistics to deliver
Over-expansion. Webvan expanded quickly into nine cities to online consumers as stores are already profitable. MGR
within 18 months and had aggressive plans for new cities retailers with their own logistics abilities already have resources
before it was successful in its first market. It even had plans to to fulfil deliveries from distribution centres to stores.
expand into 26 more cities by 2001, the year it went into Deploying a truck or dedicating a hub store to fulfil last-mile
bankruptcy. It built several warehouses with a US$1b delivery will be more viable for profitability than pure-play
investment. online players with backend logistics dedicated solely for online
purchases.
Page 17
Retailers will continue growing while online grocery shopping finds its feet
Retailers will increase their store network from suppliers. Due to their smaller store network, suppliers
cannot penetrate the market overnight by putting up their new
Larger players are growing their store network and products with the smaller retailers. They are unable to collect
operational scale. ASEANs largest listed grocery retail players listing fees as well. Smaller MGR players in Singapore have
continue to drive growth and topline with store openings. therefore tried to build up their store networks recently. HDB
This is a common theme regardless of whether grocery rents have been tendered at aggressive rates of c.S$20psf
markets are well developed or not. Even in densely-populated because smaller players have been trying to win more shop
Singapore, proliferation of stores at every corner will drive spaces to build up economies of scale. With an additional
convenience and purchase frequency. outlet or two, retailers will enjoy better economies of scale and
profitability for volume discounts and rebates, provided that
Operators in ASEAN are growing store count rental rates are economically sensible.
Store growth strategy
Sheng Siong Targets 50 stores and beyond island-wide Successful HDB rental tender rates have gone up as
eventually and in places where it has no smaller players have been bidding aggressively
presence S $ psf
22
Dairy Farm Has started to expand store count after
20
store rationalisation exercise
NTUC Fairprice Continues to bid for shop spaces 18
7-Eleven Malaysia Management maintains its new store 16

expansion plan (about 200 stores/annum)
14
Bison Consolidated The group has planned to open 70 new
12
stores per year in FY17- 18
10
CP All Plans to open at least 700 stores p.a. in the
next five years
Matahari Prima Putra Targets to open 22 hypermarkets and
supermarkets in 2017 with focus in under-
penetrated ex-Java cities. This will bring Source: Place2lease, DBS Bank
MPPAs hypermarket and supermarket
store counts to over 210 Scale drives down costs, improves margins
Pure Gold Price Club Targets to open 25 Pure Gold and two S&R
stores every year till 2020. Ways to drive down costs. The grocery retail business has thin
Robinsons Retail Plans to roll out 150 new stores net margins of <10% and players are always working to drive
Holdings nationwide for 2017. This would bring down costs. The few ways to improve margins include direct
total store count to 3,665 and could sourcing, house brands, centralising and insourcing
translate to a growth of 8-10% in gross distribution and logistics functions from suppliers, as well as
floor area bulk purchasing.
1) Distribution centres and centralisation of logistics Larger
Smaller players have incentives to build up their network or players are also incentivised to build distribution centres.
consolidate to build scale. Smaller MGR players have a Distribution centres have sprung up recently with all three
disadvantage in terms of scale and should look to scale up to players in Singapore building distribution centres. Dairy Farm
build a competitive advantage. Extremely small or independent has built a fresh distribution centre while NTUC Fairprice has
grocery retailers typically have lower sales volumes and obtain opened a new distribution centre in Joo Koon. Sheng Siong is
lower discounts/rebates and poorer credit terms often cash expanding its current distribution centre by 10%, which will
terms from suppliers. Compared to larger players with be fully operational by FY19. There will be better supplier
centralised sourcing and distribution functions, smaller players discounts for centralised logistics and volume discounts
also do not have volume discounts and bulk handling discounts product-wise, as suppliers only need to send products to the
Page 18
assigned distribution centres instead of to the stores. iCash collection system at NTUC Fairprice
Distribution centres also have capacity for higher volume
purchases, enabling the retailers to enjoy more volume
discounts. There will be more leverage on fixed warehouse
operating costs when the distribution centre breaks even.
Efficient distribution chain management will drive down opex.
2) Direct sourcing Cutting off the middlemen will improve

margins, but bears higher risks. If resources permit,
supermarkets can source directly from the producers to obtain
better pricing, subject to producers terms such as minimum
order etc. Products can be procured or imported directly from
sources such as poultry, fruit, and vegetable farms. This will cut
off the middlemen and eliminate the traders margin.
Supermarkets are increasingly sourcing for their own food
products to build differentiation and product exclusivity to
drive sales. However, without suppliers for some of their SKUs,
supermarkets lose the credit terms extended by distributors
that they enjoy unless they can negotiate similar terms with the
producers. They may have little or no recourse if these fresh
perishables delivered to them become stale. If managed well, Source: DBS Bank
retailers will enjoy better product margins on these products.
Self-payment system at Cheers convenience store
3) House brands House brands have lower product cost.
House brands are a separate category targeted at the cost-
conscious shopper. Retailers go directly to manufacturers to
have their brands stamped on products such as tissue/toilet
paper, snack food, cereals, frozen food etc. Products can be
priced at a discount to branded products, enabling the retailer
to enjoy strong product margins as there are no middlemen
involved. Similar to direct sourcing, there are no supplier
rebates that supermarkets can enjoy. House brands remain a
small part of the overall supermarket strategy, accounting for
about 10% of sales or lower.
Staff costs will reduce with handpay, self-checkouts, and

cash collection technology in stores
4) Reduction in manpower costs Self-checkout counters

reduce manpower costs. Staff costs is a significant of operating
costs at 11% of sales - and supermarkets are trying to reduce
operating cost by employing self-checkout technologies. These
are aimed at reducing staff costs at the checkout areas. These
self-service checkouts can potentially replace cashiers and
manpower needs can be better utilised by redeploying excess
labour to other functions such as stock keeping.
Source: DBS Bank
Page 19
7-Eleven Signature - First unmanned convenience store in Customers use their hands to enable payment
Korea. Koreas first unmanned convenience store has opened
st
in May 2017 on the 31 floor of Lotte World Tower in
southeastern Seoul. Known as 7-Eleven Signature, it is a
smart store featuring a host of new technologies
refrigerators that open and close automatically by detecting
human movement; 360-degree scanners that scan all items,
regardless of where the barcodes are facing, on the conveyor
belt; a smart CCTV system capable of reporting fires and
collecting data on customers; a Smart Safe Cigarette Vending
Machine that is able to verify the age of the customer; and
Handpay, by which customers can make payment with their
palms.
7-Eleven Signature, unmanned self-service store format Source: The Digital Times, DBS Bank
Labour cost savings for retailers. With a host of new

technologies being tested out, such as the 360-degree
barcode scanner, the smart CCTV system, the Smart Safe
Cigarette Vending Machine, and Handpay, retail stores in the
future can be run without any need for employees if these
technologies are successful. Eventually, the 360-degree
barcode scanner will be upgraded with artificial intelligence
that recognises a product by its shape, weight and volume,
making barcodes obsolete. This technology will be helpful
when purchasing fruits and vegetables.
Source: Korea JoongAng Daily, DBS Bank A customers bank data is linked to his/her handprint
Handpay technology. Customers have to register by scanning

their palm and entering their credit card details at the store.
They can then make payment by scanning the palm that they
have registered. Only registered customers will be allowed to
enter the unmanned 7-Eleven. Customers palm information
is saved by Lotte Card and the Korea Financial
Telecommunications & Clearings Institute while the store
keeps a history of its visitors in the system. Returning
customers can save time by not having to register a second
time. Handpay makes purchases more convenient for
customers as they do not need to bring their credit cards or
phones around while making purchases. Handpay is valid only
for use with Lotte credit cards. Users of Handpay will Source: The Korea Herald, DBS Bank
currently have to be Lotte credit-card holders. Korea Seven,
which runs the 7-Eleven franchises in Korea, is in the process
of making more cards compatible with Handpay.
Page 20
Serves only locals as the store will require your biodata
Source: Trendhunter, DBS Bank
Page 21
Macro fundamentals support the growth of MGR

The ASEAN grocery retail market has grown by 1.3% The MGR markets of Thailand, Indonesia, and the
CAGR in the past two years Philippines are the biggest in the ASEAN-5 markets
Singapore
The growth of grocery retail in ASEAN. Modern grocery retail 7%
Malaysia
in ASEAN-5 markets has grown by 1.3% to US$218b over Indonesia 9%
27%
the past two years and is forecast by Euromonitor to grow by
a CAGR of 4.5% to US$278b over the next five years.
Amongst ASEAN-5 MGR markets, the Philippines has grown
the fastest at 5%, driven by supermarkets, while Malaysia
declined, dragged by hypermarkets.
ASEAN-5 MGR market has grown in the past two years Thailand
Philippines 37%
Local currency 2014 2016 CAGR% 20%
Singapore (SGD mn) 5423.3 5969.7 4.9%

Indonesia (IDR tn) 193.16 235.01 10.3% Source: Euromonitor, DBS Bank
Malaysia (MYR bn) 25.12 25.57 0.9%
Philippines (PHP bn) 522.39 607.59 7.8%
Convenience stores have led ASEANs MGR growth in
the last two years
Thailand (THB bn) 762.54 847.54 5.4%
ASEAN-5 (US$) 63.49 65.19 1.3%
Over the past two years, MGR has generally outgrown
traditional grocery retail. The growth of MGR in the ASEAN-5
markets grew 0.9%-10.3% in local currency terms. Indonesia
MGR continues to increase in share of total grocery retail.
was the best performing MGR market, with CAGR of
Market penetration of MGR has improved by 1ppt in the
10.3%from 2014-16, led by convenience stores and
ASEAN-5 markets, reducing contribution of traditional
forecourt/petrol-station formats, which came from a low
grocery retail channels share of total grocery retail sales.
base. The best-performing format was convenience stores,
Modern grocery retail in 2016 made up about 30% of
with developing ASEAN-5 markets growing 7.8-17.1%
ASEAN-5s grocery retail market.
CAGR. Hypermarkets in Singapore increased 18% on the
opening of Big Box in Jurong. Malaysias hypermarkets
ASEAN-5 grocery retail market was worth US$217b in
declined as shoppers switched to convenience stores.
2016
Convenience stores continued to expand throughout
US$b Modern Traditional Total Penetration developing ASEAN-5, leading to the formats strong growth
Singapore 4.34 1.71 6.05 72% in the last two years.
Indonesia 17.40 83.93 101.33 17%
Malaysia 6.28 8.78 15.06 42%
Philippines 12.99 29.87 42.86 30%
Thailand 24.17 28.20 52.37 46%
ASEAN-5 65.19 152.49 217.68 30%
The largest modern grocery retail markets remain Thailand,

the Philippines, and Indonesia. Thailand, the Philippines, and
Indonesia are the three largest markets for modern grocery
retail among the ASEAN-5, in line with their population size.
Indonesia remains underpenetrated with a big population
(c.250m population) but its MGR market is significantly
smaller than traditional grocery retail.
Page 22
2-Year CAGR: Growth of MGR in ASEAN-5 generally outgrew traditional grocery retail
2014-16 CAGR% Singapore Indonesia Malaysia Philippines Thailand Total (US$)
Local currency
Supermarkets 3.4% 5.3% 2.2% 7.4% 4.9% 0.7%
Hypermarkets 19.7% 1.6% -2.0% 7.0% 3.2% -2.5%
Convenience stores -2.6% 17.1% 7.8% 16.6% 8.1% 6.2%
Others 0.4% 14.6% 2.2% 9.4% 2.8% -2.6%
MGR 4.9% 10.3% 0.9% 7.8% 5.4% 1.3%
Traditional -1.6% 7.1% 2.4% 2.9% 1.2% -0.8%
Total (US$) -1.2% 0.9% -8.8% 1.6% -0.8% -0.2%
Industry-critical factors support growth of MGR in The rise of the middle class is expected to drive demand for
ASEAN-5 better-quality products. According to Euromonitor, the number
of middle-class households, defined as those earning an
Urbanisation is driving demand for and penetration of grocery annual disposable income between US$15,000 and US$25,000
retail. Urbanisation has been a key trend for MGR. - in most ASEAN-5 countries has increased. This growing
Urbanisation rates of the ASEAN-5 countries increased 1.2ppt middle class is expected to fuel changes in consumer
in 2016, translating to an additional 11m in their urban behaviour, including higher purchasing power and stronger
population. Urbanisation makes it easier for MGR to expand demand for consumer goods, both domestic and imported
into new areas and grow in terms of value due the higher goods. These consumers, with higher purchasing power, are
selling prices in urbanised areas. Urban consumers usually have expected to shift towards purchasing better-quality products
higher disposable income and are thus more likely to purchase from MGR instead of traditional formats. MGR players are
better-quality products. expected to continue their expansion in the ASEAN-5
countries, particularly in emerging and underserved areas,
The urbanisation rate in ASEAN-5 has generally increased according to Euromonitor. MGR penetration in ASEAN-5
US$b 2014 2016 countries is forecast to increase 3ppt to 33% by 2021.
Singapore 100% 100%
Developing ASEAN-5s middle-class households
Indonesia 53% 54.47%
Malaysia 74.01% 75.37% 2008 2014
Households Households
Philippines 44.49% 44.29%
Thailand 49.17% 51.54% Indonesia 19m 17m
ASEAN-5 52.52% 53.73% Malaysia 1.3m 1.6m
*The urbanisation rate in Philippines declined because total Philippines 4.6m 5m
population was outgrowing urban population. Thailand 5m 6m
Source: The World Bank, DBS Bank Source: Euromonitor, DBS Bank
Population growth drives MGR indirectly. ASEAN-5s

population grew 2.2% in 2016, an increase of approximately
10m people. This growth is jointly driven by Indonesia, the
Philippines, and Thailand. Population growth is a fundamental
driver of food demand, for both traditional and modern retail.
Overall population growth will be positive for MGR and
provides opportunities for MGR to penetrate into both
urbanised and upcountry areas across ASEAN.
Page 23
ASEAN-5s population grew 2.2% last year

2015 2016 % chg
Indonesia 255 258 1.2%
Philippines 100 103 3.0%
Thailand 65 68 4.6%
Malaysia 30 31 3.3%
Singapore 5.5 5.6 1.3%
ASEAN-5 455.5 465.6 2.2%
Vietnam 92 95 3.3%
Myanmar 54 57 5.6%
Cambodia 15.6 16 2.6%
Laos 6.8 7 2.9%
Brunei 0.42 0.44 4.8%
East Timor 1.2 1.3 8.4%
Total SEA 625.52 642.34 2.7%
Source: CEIC, CIA World Factbook, Singstats, DBS Bank
Modern grocery retails penetration in ASEAN-5 has increased by 1ppt in each market
46% 30%
42%
72%
17%
Page 24
5-Year CAGR of 7.4% for MGR in ASEAN-5 till 2021 CAGR growth of 7.4% for ASEAN-5 MGR over the next
five years
MGRs penetration in ASEAN-5 is expected to increase by
US $ billion
3ppt to 33% in 2021. MGRs penetration in the Philippines 100
and Thailand is forecast to increase by 5ppt, the largest jumps 7.4% CAGR
among ASEAN-5 countries, to 35% and 51% in 2021, 80
respectively. Expansion of convenience stores, coupled with

Internet retailing for both supermarkets and hypermarkets, is 60
expected to be the main driver for the increase in MGRs

40
penetration in Thailand. The increase in the Philippines is
expected to be attributable to higher demand and purchasing
20
power as well as expansion by players into areas outside key
urban zones with low MGR penetration. Singapore and 0
Indonesia are forecast to post an increase in MGR penetration 2016 2017F 2018F 2019F 2020F 2021F
by 2021 while no changes are expected in Malaysia. Thailand Indonesia Philippines Malaysia Singapore

MGRs penetration in ASEAN-5 (2021) estimated at 33%
2021 Modern Traditional Total 2021 MGR Convenience stores to drive MGR growth by 4% CAGR
US$b Penetration over the next five years
Singapore 4.91 1.82 6.73 73%
Indonesia 22.53 97.45 119.98 19% 9.3% CAGR growth for convenience stores from 2016-21.
Malaysia 8.95 12.29 21.24 42% Convenience stores are expected to be the fastest-growing
Philippines 21.98 40.62 62.69 35% format from 2016-21 in ASEAN-5 countries with a CAGR of
Thailand 34.65 33.10 67.75 51% 9.3%. ASEAN-5 is expected to post high positive convenience
ASEAN-5 93.01 185.28 278.29 33% stores growth in its respective countries, with the exception of
Source: Euromonitor, DBS Bank negative growth in Singapore. Supermarkets are expected to
grow the fastest in Singapore for the next five years as
Philippines expected to post fastest growth among supermarkets remain a popular grocery retail format.
ASEAN-5 MGR over the next five years
Convenience stores are expected to grow the fastest in
US$ bn
40
Indonesia, Malaysia, the Philippines, and Thailand from 2016-
21. In Indonesia, leading convenience stores players are
35
7.5%
expected to expand their outlets into less saturated areas
30 CAGR
outside of Java despite the law limiting the expansion; In
25 Philippines, convenience stores players are expected to
5.3%
20 CAGR 11.1% expand into business districts and local neighborhoods.
CAGR
15
Convenience stores are the most suitable format due to
7.3% smaller available retail area. Consumers also value the
10 CAGR
2.5% convenience and accessibility that the convenience stores
CAGR
5 offer. In Thailand, growth of convenience stores is driven by
0 aggressive outlet expansion into metropolitan and provincial
Thailand Indonesia Philippines Malaysia Singapore
2016 2021
areas, making them a convenient platform for grocery
Source: Euromonitor, DBS Bank purchases due to their proximity to residential areas. In
Malaysia, convenience stores are expected to expand their
outlet count to cater to the higher demand for convenience
stores. This demand is driven by the increasingly busy
lifestyles in Malaysia and consumers value the convenience
(24-hour operation and quick meal solutions) offered by these
convenience stores.
Page 25
In Singapore, supermarkets have room to grow; negative

growth expected for convenience stores. Convenience stores
are expected to decline by 1.9% CAGR from 2016-21 largely
due to the increased competition from supermarkets.
Supermarkets are expected to be the fastest-growing format
for the next five years with a CAGR of 3% with the HDBs
constant supply of shop space for supermarkets driving
growth. The convenience of visiting supermarkets and lower
prices compared to convenience stores make supermarkets a
popular format in Singapore. Supermarkets are opening
smaller outlets and expanding into residential districts.
CAGR growth of 7.4% for MGR in ASEAN-5 over the next five years, led by the Philippines and convenience stores
2016-21 CAGR% (US$) Singapore Indonesia Malaysia Philippines Thailand Total
Supermarkets 3.0% 2.5% 6.3% 9.7% 6.4% 6.6%
Hypermarkets 2.4% 1.6% 5.8% 13.3% 5.2% 6.0%
Convenience stores -1.9% 7.8% 14.2% 19.4% 9.8% 9.3%
Others 1.9% 3.8% 6.7% 10.9% 6.7% 6.7%
MGR 2.5% 5.3% 7.3% 11.1% 7.5% 7.4%
Traditional 1.2% 3.0% 7.0% 6.3% 3.3% 4.0%
Total 2.1% 3.4% 7.1% 7.9% 5.3% 5.0%
Page 26
Companies with scale are the players in the sweet spot

Scale is a natural barrier to entry. We see operating scale as a Companies with a logistics network
natural barrier to entry. Companies with reasonable scale have
the resources to grow. Their economies of scale have already Larger players with a logistics network have an advantage in
taken care of their fixed operating costs and are helping them supply chain management. Bigger players which already have a
leverage their existing resources (by securing more sales and supply chain definitely have an advantage in scale and cost.
squeezing out more operating leverage). They can readily These players with their network of stores, already have a
invest to reduce cost and gain operating efficiencies (self- sizeable market share. Distribution centres facilitate supplier
checkout, cash recycling, cash payment systems) and enjoy a delivery to their facility, alleviating the need for suppliers to
high level of leverage such as credit financing, payment terms, make multiple deliveries to various stores. This drives down
and bulk discounts from suppliers due to their volumes. product costs and improves gross margins, along with bulk
Grocery retailers with scale have the ability to help suppliers discounts. Players who want to establish a distribution centre
reach a large target audience in a short space of time. to gain such scale have to build up their store network in order
for the warehouse to be adequately utilised. The cost of
Companies with a store network establishing a warehouse is not cheap and goes into the
millions of dollars (at over S$100 psf of construction cost).
Larger players have sufficient scale to strengthen their position. Allowable financing can be over 10 years, depending on the
We like listed grocery retail players in ASEAN as they are well property. They are entitled to bulk and volume discounts, as
positioned to grow over the next few years. The players have well as better credit terms (as opposed to cash on delivery for
sufficient cash resources, a sizeable store network, bargaining smaller players) due to their higher sales turnover.
power with suppliers, cash generation capability, and a strong
logistics network to help them grow going forward. Where ASEAN-5s key players have set up sizeable distribution
profitability and cash generation is not an issue, they could centres
implement new stock-keeping, online shopping, store- Location Cost Completed Size sqft
DFI Tampines S$40m 2006 260,000
checkout technologies, more aggressive marketing and
Sheng Siong Mandai S$65m 2011 500,000
promotions etc in stores to strengthen their position and get NTUC Fairprice Joo Koon S$350m 2015 730,000
ahead of the competition. Singapores three key MGR players RedMart Fishery Port n/a 2015 100,000
who already have strong economies of scale through their MPPA Balaraja n/a n/a 449,996
store network, for example, are operating very efficiently, way MPPA Surabaya n/a 2014 172,998
1
MPPA Cibitung n/a 2016 87,026
ahead of the regional average. 7-Eleven Shah Alam n/a Leased 90,000
Bison Rawang n/a 2013 125,000
Singapore had the highest MGR average sales (psf) Bison Sub DC Johor Bahru RM3.9m 20172 9,800
among ASEAN-5 in 2016 Makro Ayudhaya n/a 2008 107,639
Makro Ayudhaya n/a 2009 215,278
Ave rage sales Makro Bangna n/a 2014 236,806
ps f (US$)
Makro Mahahai n/a 2015 247,570
900
CPALL Bangbuatong n/a <2010 269,098
800 CPALL Suvarnabhumi n/a <2010 236,806
700 CPALL Surathani n/a <2010 129,167
CPALL Khonkaen n/a <2010 129,167
600
CPALL Lampoon n/a <2010 182,986
500 CPALL Mahachai n/a 2014 215,278
400 CPALL Chonburi n/a 2015 107,639
BIG C Thanyaburi n/a n/a n/a
300
BIG C Ladkrabang n/a n/a n/a
200 BIG C Ayudhaya n/a n/a n/a
100 BIG C Bang Plee n/a n/a n/a
1
0
relocated & expanded; 2purchased end of 2016
Singapore Thailand Philippines Malaysia Indonesia Source: Companies, DBS Bank
Page 27
Smaller players to play catch-up A sizeable network and logistics chain may attract a
takeover bid from an online player
Smaller players, in order to compete, will have to gain scale
by opening more stores. However, they are limited by Acquisitions abound in the grocery retail space. Grocery
resources including finances. It will be slightly harder for them retailers have been busy acquiring and selling over the past
to implement cost reduction measures such as installing cash two years. Notable transactions in ASEAN include Casino
machines and increasing rebates given by suppliers. One of Groups 3.3b disposal of BIG C to the TCC Group in 2016
the ways is to outbid incumbents with a slightly higher rental and the sale of RedMart, Singapores online grocery retailer,
rate to win stores, which has resulted in high rental rates for to Lazada for US$30-$40m. Valuations for the transactions
shop space in Singapore. Having more stores will give them have been priced between 0.5-1.8x sales and 10-33x
more bargaining power when negotiating credit/financing EV/EBITDA.
terms with suppliers. These will improve operating leverage
and overall margins and profitability of their business. Amazon has already bought Wholefoods, undertaking an
Although smaller stores are gaining traction in terms of store online-to-offline strategy. Amazon announced in June that it
wins, their higher-than-market store rental rates would mean was acquiring the 431-store upscale US brick-and-mortar
lower profitability and higher operating efficiencies is grocery retailer Whole Foods Market for US$13.7b. Whole
expected turn in better profitability. Foods will give Amazon an instant national physical presence
and a network of mini distribution points for fresh produce,
alleviating the challenge of perishability of fresh food in the
online grocery business.
Valuations of M&A transactions in ASEAN (save for Wholefoods by Amazon)

Target Acquiror Implied EV Date PE P/Sales EV/EBITDA Remarks
Carrefour TH Big C US$1.2b 2010 n/a 1.2x 13x
Carrefour ID CT Corp US$1.1b 2012 n/a 0.9x n/a 60% stake for US$672m
Siam Makro CP All US$6.4b 2013 56.7x 1.7x 33.3x
AS Watsons Temasek US$22.7b 2014 22.6x 1.2x 12.5x 25% stake for US$5.6b
Big C TH Berli Jucker US$6.2b 2016 31x 1.7x 17.1x
Big C VN Central Group US$1.1b 2016 n/a 1.8x 20.4x
RedMart Lazada US$30m 2016 n/m 0.5x n/m Operating and net losses
Wholefoods Amazon US$13.7b 2017 27.1x 0.9x 9.9x
Source: Mergermarket, DBS Bank
A store network will be valuable to Amazon. Amazon will also

take over Whole Foods 365 house brand. The acquisition will
provide Amazon with a ready pool of suppliers for fresh and
packaged food, a network of stores close to customers as well
as a supply chain platform for its online business to grow. This
is similar to Amazons bookstore business, which has both
online and offline/store presence in the USA. Having both
online and offline channels will facilitate delivery to customers
with a hub-and-spoke logistical model and a Click-and-
Collect mode of fulfillment.
Page 28
Top picks are DFI, SSG, RRHI, CPALL Our ASEAN grocery retail universe trades at a PE of 22x
(x)
Our ASEAN grocery retail universe is trading at 22x PE. 40.0
Valuations of ASEAN grocery retailers are not cheap,

35.0 +2sd: 34.9x
compared to global grocery retail stocks. Nonetheless they
offer investors defensive earnings of a non-cyclical nature, net
30.0 +1sd: 29.9x
cash balance, cash generation capabilities, earnings growth,
and dividend yield (for selected stocks). 25.0 Avg: 25x
Our top picks are SSG, DFI, CPALL, RRHI. Our picks for the 20.0 -1sd: 20x
sector are SSG and DFI in Singapore, CPALL in Thailand, and
RRHI in the Philippines. Earnings are expected to outpace 15.0 -2sd: 15.1x
revenue growth on margin expansion. SSG is expected to

10.0
continue expanding its margin as it shifts to more fresh food Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
and better supplier rebates. We expect DFIs margin to improve Source: ThomsonReuters, DBS Bank
after rationalising loss-making stores, especially in Singapore.
RRHIs margin is also expected to trend up on price
adjustments and closure of loss-making stores. CPALL
expanding both its network and its margin, fuelled by
penetration in Thailand and the discontinuation of discount
coupons to big-basket customers.
Page 29
DBS ASEAN grocery retail stock universe

DFI SSG CPALL PGOLD RRHI BISON SEM MPPA
Stock call BUY BUY BUY HOLD BUY NR NR FV
Current price US$8.21 S$0.99 Bt61.00 P46.80 P87.00 RM2.40 RM1.30 Rp650
TP US$9.96 S$1.20 Bt75.00 P41.90 P101 RM2.02 RM1.58 Rp450
Upside 21% 21% 23% -10% 16% n/m n/m -31%
Our investment Core valuation ex Expansion of Defensive play, Facing direct Targets higher-end Successfully Offers one of the Competition against
thesis Yonghui is cheap at distribution centre business resilience, competition from customers who are established a feasible best exposures to a hypermarkets and
20x PE will support margin continuous network Landers. Inflation immune to business model with potential minimarkets would
expansion in the expansion success. negative on low end inflationary earnings track consumption continue to put
form of higher Margin expansion customers, rising pressures. Margin record, but at 30x recovery story, but MPPAs revenue
volume discounts from improving inventories, lower expansion on higher- FY17 PER, we believe high operating growth and margin
from suppliers and product mix, as well margins from priced product mix that the stock is expenses from new under pressure
fresh-food mix as lower interest cost suppliers fairly valued at this store expansion
on debt repayment juncture could weigh on
and refinancing earnings
Risk Improvement of Margin expansion is Delays in store Competition from Possibility of more Inability to secure Higher-than- MPPAs valuation
backend operations over as it could not expansion, weak both big chain and store closures this strategic locations expected operating could be supported
may fail to reduce squeeze more consumer smaller players year may be with high foot traffic expenses and if sale by major
operating cost and margins from confidence, and continues to place detrimental to execution risks with shareholders fetches
raise margin operations intense competition pressure on growth margins regards to its store a premium
expansion plan
Earnings Margins to expand Product margins Revenue led by Stable margins but One-off costs on Double-digit Aggressive new store Price-cutting strategy
outlook on closure of loss- expected to improve softer competition slower growth store closures. earnings growth expansion plan should put margin
making stores, on expansion of for cash and carry against backdrop of Margins set to driven by new outlet supporting topline under pressure in the
backend efficiencies distribution centre and margin rising inflation and normalise openings and growth, but expect near term
and fresh-food mix expansion driven by on less pronounced gradual recovery in high operating
convenience stores impact of new store consumer sentiment expenses from new
improving product roll-outs store expansion to
mix weigh on earnings
Two-year EPS 6.5% 7.2% 20.6% -2.4% 13.6% 28.0% 10.7% 2.6%
CAGR
Fwd PE multiple 21.1x 20.6x 22.7x 19.7x 19.3x 24.4x 20.3x n/m
Page 30
Peer Comps
M ark et Operat ing Net Div idend
12-mth Cap P/BV P/Sales ROE M argin M argin Y ield Rev enue Gross Net debt Operat ing Inv ent ory Pay able Collec t ion
Company Rat ing TP (S$m) Px L ast PE (A c t ) PE (Y r 1) PE(Y r 2) (x ) (x ) (%) (%) (%) (%) (US$m) M argin t o equit y c ashf low s day s day s day s CCC
Sout h East A sia Ret ailers
Dairy F arm Intl BUY 9.96 15,136 8.21 23.9x 22.8x 21.1x 6.5x 0.9x 30% 4.1% 4.2% 2.8% 11,201 30.2% cash 543 46.09 112.40 8.54 (58)
CP ALL BUY 75 22,227 61 33.0x 27.3x 22.7x 8.2x 1.1x 33% 6.6% 4.1% 1.8% 12,873 21.9% cash 1,123 28.51 71.34 0.79 (42)
Big C Supercntr NOT RATED n/a 7,451 223 28.4x 24.1x 22.8x 3.5x 1.6x 13% 7.0% 5.5% 0.9% 3,274 22.0% 0.3 72 46 79 8 (26)
Siam Makro NOT RATED n/a 6,950 35.75 29.7x 27.6x 25.5x 9.9x 1.0x 35% 4.1% 3.1% 2.4% 4,802 10.7% 0.4 253 31 56 4 (20)
Puregold HOLD 41.90 3,501 46.80 23.6x 21.6x 19.7x 2.7x 1.1x 13% 7.1% 4.9% 0.6% 2,224 16.5% cash 53 58.41 38.49 10.64 31
Robinsons Retail BUY 101 3,260 87.00 24.9x 21.6x 19.3x 2.3x 1.0x 11% 5.3% 4.7% 0.9% 2,080 21.9% cash 122 54.41 71.86 6.52 (11)
Sumber Alfaria NOT RATED n/a 2,989 700 47.8x 35.3x 30.7x 5.5x 0.5x 12% 2.3% 1.1% 0.6% 4,165 10.7% 1.2 156 43 43 12 12
Matahari Putra FULLY VALUED 450 359 650 90.8x nm 86.3x 1.5x 0.2x n/m n/m n/m 0.0% 1,015 16.3% cash 44 89.27 75.31 1.26 15
PSC NOT RATED n/a 2,074 167 66.5x - - 15.9x 2.7x 24% 6.1% 4.1% 0.4% 570 24.5% 0.1 56 32 40 15 6
Sheng Siong BUY 1.20 1,481 0.99 23.6x 21.6x 20.6x 5.7x 1.8x 27% 9.0% 8.5% 4.2% 582 25.7% cash 57 36.16 71.54 5.07 (30)
Hero Supermarket NOT RATED n/a 452 1,050 24.2x - - 0.8x 0.3x 3% 1.6% 1.1% n/a 1,015 26.1% (0.0) 31 72 51 9 31
Bison Cons NOT RATED 2.02 237 2.40 40.0x 29.8x 24.4x 4.3x 2.2x 15% 9.4% 7.4% 0.6% 62 35.8% cash 5 56.97 79.00 32.19 10
7 Elev en NOT RATED 1.58 461 1.30 24.9x 23.6x 20.3x 30.5x 0.6x 148% 3.7% 2.6% 3.4% 490 30.7% cash 18 57.88 113.91 17.20 (39)
Midi Utama ID NOT RATED n/a 276 930 13.3x - - 2.9x 0.3x 24% 5.0% 2.3% 2.2% 631 25.6% 2.1 52 50 51 12 11
Regional av erage 35.3x 19.4x 28.5x 7.2x 1.1x 30% 5.5% 4.1% 1.6% 3,213 22.7% 0.7 185 50 68 10 (8)
Int ernat ional Peers
Tesco PLC 25,508 173.50 n/m n/m n/m 2.2x 0.3x 1% 1.2% 0.1% 0.0% 69,700 5.4% 0.8 2,466 16 33 33 17
Carrefour SA 26,509 21.77 20.5x 14.1x 12.7x 1.6x 0.2x 8% 2.5% 1.0% 3.2% 82,815 22.8% 1.1 3,476 40 87 37 (11)
Kroger Co 28,310 23.01 13.8x 11.6x 11.3x 3.4x 0.2x 25% 3.0% 1.7% 2.2% 115,337 22.4% 2.1 4,272 26 24 5 8
Woolworths Ltd 36,636 26.46 50.8x 22.5x 20.3x 3.7x 0.6x 7% 2.8% 3.4% 2.9% 43,462 26.8% 0.4 1,758 40 42 3 1
Ocado Group PLC 3,130 280.10 n/m n/m n/m 6.1x 1.3x 4% 1.7% 0.9% 0.0% 1,585 34.2% 0.6 121 15 35 14 (6)
Koninklijke Ahold Delhaize NV 34,422 17.20 20.2x 13.3x 11.9x 1.3x 0.4x 9% 3.2% 1.7% 3.3% 52,245 26.9% 0.2 3,041 25 41 9 (7)
J Sainsbury PLC 9,660 245.70 14.9x n/m n/m 0.8x 0.2x 5% 2.4% 1.4% 4.2% 31,912 6.2% 0.2 1,403 20 35 36 21
Delhaize Le Lion De Leeuw SCA 16,021 102.80 - - - - - - 2.7% 1.5% 1.8% 26,493 24.3% 0.1 1,384 28 46 10 (8)
Regional av erage 24.0x 15.4x 14.0x 2.7x 0.4x 9% 2.4% 1.5% 2.2% 52,944 21.1% 0.7 2,240 26 43 18 2
Nort h A sia peers
Sev en & i Holdings Co Ltd 48,832 4,520 41.3x 20.8x 18.0x 1.7x 0.7x 9% 3.7% 1.7% 2.0% 52,158 38.3% (0.0) 4,579 21 42 28 6
President Chain Store Corp 12,841 275.00 28.1x 26.9x 24.8x 9.1x 1.3x 48% 4.8% 4.6% 2.9% 6,682 32.8% (0.9) 734 30 54 9 (15)
Yonghui Superstores Co Ltd 13,560 6.71 43.3x 40.7x 32.8x 3.4x 1.3x 10% 3.0% 2.5% 1.8% 7,084 20.1% (0.5) 277 45 54 13 3
Sun Art Retail Group Ltd 10,677 6.30 20.5x 21.8x 20.0x 2.4x 0.5x 18% 3.9% 2.6% 3.8% 14,453 23.9% (0.3) 1,000 67 93 7 (19)
Lawson Inc 9,021 7,380 19.9x 21.1x 20.2x 2.7x 1.2x 22% 9.5% 5.8% 3.4% 5,642 72.4% 0.6 896 38 234 66 (130)
F amily Mart UNY Holdings Co Ltd 9,667 6,260 33.0x 33.3x 25.5x 1.5x 0.9x 9% 3.9% 2.2% 1.8% 7,542 62.7% 0.7 745 41 184 68 (75)
Ministop Co Ltd 868 2,424 n/m n/m n/m 1.2x 0.4x 1% -0.7% 0.1% 1.9% 1,760 37.6% 0.0 85 8 73 33 (32)
E-Mart Inc 8,267 238,000 17.6x 16.1x 13.8x 0.9x 0.4x 7% 3.7% 2.5% 0.6% 12,235 28.1% 0.5 616 32 30 8 11
Lianhua Supermarket Holdings Co Ltd 683 3.42 - nm 76.3x 1.4x 0.0x -8% -0.8% -1.7% 0.0% 3,837 14.8% (2.4) 15 47 64 8 (8)
CV S Bay Area Inc 46 750 94.4x - - 1.7x 0.1x 8% -0.4% 0.3% 1.3% 263 30.2% 1.7 5 9 4 9 13
Poplar Co Ltd 87 606 12.9x - - 1.8x 0.2x 18% 1.6% 0.9% 0.0% 297 30.2% 0.3 0 13 42 5 (24)
Beijing J ingkelong Co Ltd 164 2.21 29.4x 26.7x 21.6x 0.5x 0.0x 8% 2.1% 0.2% 2.6% 1,710 20.0% 1.8 85 63 47 66 82
Regional av erage 34.0x 20.3x 28.1x 2.4x 0.6x 12% 2.9% 1.8% 1.8% 9,472 34.3% 0.1 753 35 77 27 (16)
Source: ThomsonReuters, DBS Bank
Page 31
Appendix Players in online grocery retail

Opentaste Opentaste aims to undercut retailer margins
Food direct from farms delivered within 36 hours. Customers

order fresh food such as fruits, vegetables, and dairy on
Opentaste. They have the option to purchase from different
producers. The orders are subsequently consolidated at a
Social Aggregating Centre (SAC) until a cut-off time before
the orders are sent to the respective producers in the various
countries. The producers, upon receiving the orders, harvest,
pack, and pass the food to a freight forwarder. The food will
be delivered to a major airport and depart for Singapore.
When the food arrives in Singapore, Opentaste packs the
food according to the customers orders at its receiving center
in Jurong. If necessary, the food is packed in insulated bags. Source: www.opentaste.sg
The food will be delivered at a time specified by the
customers. Opentaste strives to deliver the food items within Listing food on Opentaste. Besides being a customer, people
36 hours of the customers order. can be sellers on Opentaste as well and get access to a larger
market. Listing food on Opentaste is free and sellers gets to
Opentastes online model set their own prices. Opentaste will deduct a processing and
delivery fee from the seller when an item is sold. The sellers
have the option to cash out their earnings to their respective
bank accounts or to use it to purchase food on Opentaste.
Types of food that can be listed on Opentaste
Source: www.opentaste.sg
What makes Opentaste stand out? Fresher and tastier food.

Opentaste claims that their food items are typically fresher
and tastier as their farmers only harvest the food upon order
by the customers. The food items are also sold at better prices
as Opentaste does without intermediaries such as exporters,
importers, and distributors. They also reduce waste in the Source: www.opentaste.sg
process as farmers know the exact amount of food to
harvest. Free delivery for purchases of S$35 and above. Customers are
charged a S$4.95 delivery fee with purchases under $35. For
purchases of S$35 and above, customers get to enjoy free
home delivery. Opentastes drivers are paid S$25 an hour and
they are required to deliver up to 12 orders within a two-hour
window.
Page 32
Honestbee - Online concierge and delivery service
Same-day 1-hour delivery. Customers order from the many Out of stock?
grocery stores (NTUC Fairprice, Mmmm!, Gastronomia, etc.)
listed on Honestbee. Honestbee enters into revenue-sharing
agreements with all its partner merchants. The stores
available for selection to the customers are dependent on the
delivery address. Orders from multiple stores are possible.
Once the orders are made, a concierge shopper hand-picks
the products and passes them to a delivery bee. The products
can be delivered within an hour of the order.
Honestbees online model
Source: www.honestbee.sg
How are the prices like on Honestbee? Several products on

Honestbee are labeled Todays best price. These products
are sold without a mark-up and are the same as in-store
prices on the day the order is made. The other products are
Source: Honestbee app priced higher than in-store.
Convenience is the selling point for Honestbee. Honestbee Delivery/concierge fees. Honestbee offers free delivery with
caters to people who are providentially hindered from orders of S$50 from Fairprice and S$40 from Specialty and
shopping for products on their own. These people may range Farm to Table stores. Customers that do not satisfy the
from housemakers to breadwinners to the physically minimum spending will have to pay a S$10 delivery fee.
impaired. These people can shop at their fingertips, and Customers may also have to pay a peak fee if they select a
coupled with same-day 1-hour delivery, Honestbee is the time slot during which the delivery bees are busy. Peak fee
ideal platform for these people to purchase their necessities ranges from S$0.50 to S$2. On top of the delivery fee,
fuss-free. Compared to the individual grocery retailers online customers have to pay a concierge fee of S$3.99 per store for
platform (Fairprice Online, Cold Storage Online, etc.), most stores.
Honestbee allows the customers to make purchases from
many retail stores at one go. Peak fees
Out of stock? If a product is out of stock, Honestbee offers 3

options to the customer. 1) Let the concierge shopper
suggest alternatives. The customer has 10 minutes to approve
the purchase of the alternative product. The product will not
be purchased without the customers approval; 2) The
customer chooses the substitute product at the point of
order; 3) The customer can opt not to have the product
substituted as well. Customers pay for the final list of
products only upon delivery.
Source: www.honestbee.sg
Page 33
Shopper/delivery bees. Shopper bees are paid up to S$11 an Grocery shopping on many platforms
hour, which is based on a fixed hourly rate and a variable
bonus. Delivery bees receive a fixed hourly rate and a bonus
for the number of drops that they make, translating to a
maximum of S$22.20 an hour. HonestBee has worked out a
revenue-sharing agreement with all its partner merchants, all
of whom pay HonestBee for bringing in new customers.
HappyFresh
HappyFresh serves 3 countries. HappyFresh is available in

Indonesia, Malaysia, and Thailand. Customers shop for their Source: www.happyfresh.com
groceries from the wide range of stores available on the
HappyFresh website or mobile app. The stores available for Three ways HappyFresh makes money. There is a minimum
selection is dependent on the delivery location of the spend and a delivery fee. Some of the merchandise are priced
customer. Once the orders are made, the groceries will be by higher than its offline price to cover the service fee. 1)
a Grocery Courier. In Indonesia, HappyFresh ties up with 4 Delivery fee. Delivery fee differs among the countries
hypermarkets (Transmart/Carrefour, Lotte Mart, and Grand HappyFresh serves. Customers pay IDR 20,000 for delivery
Lucky), 5 supermarkets (Ranch, Farmers Market, Superindo, during all delivery slots in Indonesia. In Malaysia, the delivery
Loka, and Lotte) and some specialty stores (pet shops, organic fee is RM 10 for next-hour time slots and RM 8 for other time
food stores, liquor shops). Coverage is limited to Greater slots. If the delivery address is outside of the normal coverage
Jakarta and the city center of Surabaya and Bandung (Java). area of the store, customers will be charged an additional RM
1 per km. As for Thailand, delivery during regular hours is 60
HappyFreshs online model THB for the first 0-10 km and 12 THB/km from 11 km
onwards. Delivery during peak hours is 80 THB for the first 0-
10 km and 12 THB/km from 11 km onwards. 2) HappyFresh
takes a fee from its retail partners. 3) HappyFresh operates an
analytics and data business, HappyData. It is a platform on
which retailers can promote their products and services. As
for payment, there are two methods: credit card and cash-on-
delivery.
Source: www.happyfresh.com
Out of stock? If a product is out of stock, the customer has 3

options. 1) The Personal Shopper will suggest a similar item
and call the customer for approval. 2) Customers can choose
specific alternatives for any product when they make their
orders. 3) Customers can opt for no replacement for any out-
of-stock products as well.
Page 34
GoFresh FreshDirect
Wide product range. GoFresh offers a wide product range Supplier of fruits and vegetables to commercial kitchens.
comprising seafood, meat, fruits, and vegetables which are FreshDirect is a grocer that serves commercial kitchens,
sourced directly from fishermen, farmers, and artisans around supplying to restaurants, cafes, hotels, and supermarkets all
the world. The products are offered to customers either fresh over Singapore. FreshDirects product portfolio comprises
or frozen. The freezing process is industry standard and the mainly fruits and vegetables. They ensure the quality of their
products are cry-vac-packaged to preserve the freshness and products by conducting regular farm audits and product
flavor of the food. Before customers place their orders on inspections. FreshDirect also claims to have the best cold-room
GoFreshs online store, GoFresh provides suggested cooking technology. Customers can place their orders through phone,
methods, recipes as well as tips for the products. Next-day email or fax. The order form is available on FreshDirects
doorstep delivery is available for orders made before 3pm website. Orders have to be made before 3pm for next day
from Sundays to Fridays. Orders placed on Saturdays and delivery and before 12pm on Saturday for Monday delivery.
public holidays will be delivered on the next work weekday. FreshDirect do not deliver on Sundays and public holidays.
The products are delivered in ice-packed, insulated boxes.
Pre-cut fruits and vegetables, ready to cook and eat products.
Kitchenomics is a premium service provided by FreshDirect.
100% guarantee. GoFresh is committed to delivering fresh Customers can opt to have their fruits and vegetables pre-cut
produce and each purchase comes with a Freshness and tailored to their needs. This request will have to be made
Guarantee. Customers will be able to replace or ask for a three working days in advance. Furthermore, FreshDirect serves
refund for any products that are not delivered fresh if they ready-to-heat soups as well. With ready-to-cook and ready-to-
notify GoFresh within two days of delivery. eat products, customers can save on their food preparation
and manpower.
GoFresh 100% guarantee
FreshDirects premium service - Kitchenomics
Source: www.miseenplaceasia.com
Source: www.gofresh.com.sg More innovative online grocery retailers. Innovative online

grocery retailers are set to continue offering many new services
Delivery fee. GoFresh delivers island wide and has a minimum and experiences to cater to different consumer needs.
order of S$40. Purchases above S$60 are entitled to free OpenTaste offers consumers fresh food directly from the farms
delivery. Standard delivery fee is S$15. through the online channel. This service meets the needs of
consumers who highly value freshness of their food.
Furthermore, several products are offered at better prices
compared to supermarkets as this model do without
intermediaries such as exporters, importers, and distributors.
Page 35
Brick and mortar players have been partnering online players

Year Brick & Mortar Note
and online player
partnerships
2000 John Lewis John Lewis Partnership took a 40% stake in Ocado for 35m
Partnership and After a series of private capital raisings by Ocado, the stake was reduced to 29% in 2008 and transferred
Ocado to John Lewis Pension Fund.
John Lewis Pension Fund divested a portion of the stake in 2010 and the remainder in 2011 for a total
255m
2000 Waitrose and Ocado entered into a deal to deliver Waitroses products and to use the Waitrose brand
Ocado The agreement was renegotiated in 2008 and extended for a further ten years in 2010 with a break clause
exercisable in 2017
2001 Ahold Delhaize Ahold acquired a 51% stake in Peapod in 2000 and subsequently the outstanding 49% in 2001
and Peapod The total privatisation cost is approximately US$108m
2011 Morrisons and Morrisons acquired a 10% stake for US$50m to gain insight into FreshDirects online model
FreshDirect Morrisons sold the stake for c.US$58m in 2016 after setting up its own online grocery retail channel in
2013
2011 Walmart and Walmart took a minority stake in 2011 and raised their stake in Yihaodian to 51% in 2012. Walmart
Yihaodian subsequently bought out the remaining shares in 2015.
In 2016, the entire stake was sold to JD.com, Chinas second largest online retailer behind Alibaba, in
exchange for a 5% stake in JD.com, valued at approximately $1.5b
2013 Tesco and Lazada Tesco acquired a 19.6% stake in Lazada for 124m
In April 2016, 8.6% stake in Lazada was sold to Alibaba for 90m
After the sale and issuance of new shares, Tescos stake in Lazada was reduced to 8.3%
2013 Morrisons and Under a 25-year deal, Morrisons agreed to buy Ocados distribution centre and technology license for
Ocado 170m
Ocado will assist in the technology, logistics and distribution aspects of Morrisons new online grocery
retailing
2017 Whole Foods AmazonFresh, Amazons online grocery platform, was launched in 2007
Market and Amazon announced that it was acquiring Whole Foods Market for US$13.7b
Amazon
Source: DBS Bank
Page 36
Singapore
High MGR penetration, 5-year CAGR projected at 2.5% MGR forecast to grow at 2.5% CAGR, led by
led by supermarkets supermarkets
Increasing smaller format supermarkets seen, and at the S GD million
expense of convenience stores 7000
Increasing focus on fresh produce and reining in
6000
operating expenses to improve margins
Key stock picks are Sheng Siong and Dairy Farm 5000
4000
Market size and growth
3000
US$6b grocery retail market, US$4.3b MGR, 72% MGR 2000
penetration. Grocery retail in Singapore had a market size of 1000

approximately US$6b in 2016, a slight decrease from
0
US$6.2b in 2014 due to a shrinking traditional grocery retail 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F
market. Grocery retail declined 1.2% CAGR from 2014-16 Supermarkets Hypermarkets Convenience stores Forecourt retailers
due to a decrease in traditional grocery retail sales as more Source: Euromonitor, DBS Bank
people shifted from traditional to MGR purchases. MGR
penetration increased to 72%; hypermarkets had the highest 3% CAGR for supermarkets from 2016-21. Supermarkets are
growth of 14.9% CAGR from 2014-16, driven by strong sales expected to post the highest growth of 3% CAGR for the
of daily essentials under the private-label brands at next five years. Convenience stores are forecast to continue
supermarkets. its decline, albeit at a slower pace due to the emergence of
more supermarkets.
Market size of MGR is expected to reach US$4.9b in
2021 Supermarkets are expected to grow the fastest going
US$b Modern Traditional Total Penetration forward
2014 4.28 1.92 6.20 69% US$b 2014 2016 2014-16 2016-21
2016 4.34 1.71 6.05 72% CAGR% CAGR%
CAGR% 0.7% -5.6% -1.2% 2014-16 Supermarkets 3.23 3.18 -0.8% 3.0%
2021 4.91 1.82 6.72 73% Hypermarkets 0.53 0.70 14.9% 2.4%
CAGR% 2.5% 1.2% 2.1% 2016-21 Convenience
Source: Euromonitor, DBS Bank stores 0.44 0.39 -5.9% -1.9%
Others 0.083 0.077 -3.7% 1.9%
2.5% CAGR for MGR from 2016-21. This trend is expected MGR 4.28 4.35 0.7% 2.5%
to reverse with a growth of 2.1% CAGR for the next five Source: Euromonitor, DBS Bank
years. MGR growth is expected to increase to 2.5% CAGR,
driven by the emergence of more supermarkets. Traditional MGR dominates grocery retail
grocery retail is forecast to increase at a 1.2% CAGR from Forecourt retailers
2016-21 as people shift towards MGR purchases. Convenience stores 1%
6%
Hypermarkets
12%
Supermarkets
53%
Traditional
28%
Page 37
Singapores MGR is dominated by supermarkets Developments

Forecourt
Convenience retailers
stores Smaller outlets. With increasing affluence and interest in
2%
9% home cooking, Singaporeans are spending more on groceries.
Grocery retailers are constantly offering deals and benefits
Hypermarkets such as discounts and loyalty programs to entice consumers
16% to spend more at stores. Supermarket retailers are opening
smaller outlets, expanding their footprint into residential
districts, and extending their operating hours to 24 hours a
day. For example, NTUC opened six new small outlets in
residential districts which offers daily essentials at low prices
to cater to the lower-income group. NTUC also expanded its
Supermarkets
73% range of private label products to fresh produce to target
Source: Euromonitor, DBS Bank budget-conscious consumers.
Singapores MGR market players Technology in the grocery store. Modern grocery retailers are
Other MGR
incorporating technology into their business through the use
Big Box Singapore Pte 6% of self-service checkouts, increasing payment options as well
Ltd
4% as having efficient logistics management to ensure the quality
Sheng Siong Group
and safety of the grocery products. Online grocery retailing is
Ltd picking up as Singaporeans are increasingly tech-savvy and
13%
NTUC FairPrice Co- value the convenience that it is able to offer. Although
operative Pte Ltd consumers would still prefer to visit the physical stores to
47%
purchase fresh produce and perishable food, bulky goods
such as rice and oil are popular purchases through the online
Dairy Farm
channel. Good customer service and attractive discounts and
International Holdings rewards are important aspects valued by online consumers.
Ltd
30% This has attracted the attention of global e-commerce market
players such as Amazon and Tesco which have plans to
expand their business into Southeast Asia, starting with
Singapore.
Singapores grocery retail market players
Varying strategies employed. With regards to the market

Traditional
28%
NTUC FairPrice Co- strategies of the local players, NTUC has expanded its range
operative Pte Ltd
34% of fresh food and daily staples while Giant and Sheng Siong
have seen strong sales of daily essentials under their
respective private labels, which are priced lower. Convenience
stores have taken a hit from the growing presence of
Other MGR
4% supermarkets but they are continuing to innovate and are
Big Box Singapore Pte expanding into consumer food service, widening their
Ltd
3%
product ranges, and offering value-added services such as
Dairy Farm
Sheng Siong Group
International cash withdrawals, e-commerce payments, and collection
Ltd
9% Holdings Ltd points for online retailing orders. 7-Eleven, for example, has
22%
introduced seating areas, new ranges of fresh food items and
chilled ready meals, and are offering more premium products.
Page 38
Key sector trends Stock picks
Singapores consumers have been downtrading. Over the Sheng Siong (SSG SP, BUY TP S$1.20). We remain positive on
past year, the weak economy has seen consumers trading Sheng Siong on the back of better visibility of higher margins.
down from higher-end supermarkets to the mass-market We believe expansion of its distribution centre will grow and
segment. This has led Dairy Farm, which operates higher- sustain gross margins going forward. Margins remain on the
end supermarket Cold Storage, to close some non-profitable uptrend, supported by the increase in direct sourcing, bulk
stores in Singapore in CY2H16. handling, and fresh mix, contributing to earnings growth. The
stock is trading attractively at 20.4x FY18F PE, compared to
Store profitability remains very much in focus going forward historical average of 23x since listing. Yield remains attractive
for larger players. We expect same-store sales growth to at 4.4%. Our target price for Sheng Siong is S$1.20, based
track at 0-5%, but earnings improvement will be driven by on 25x FY18F PE. The valuation is pegged at +1SD of its
operating leverage and margins. Cost management will be historical mean since listing and is below regional peers'
key to earnings growth. Supplier rebates, sales mix of fresh average of 30x PE.
and non-fresh food, rent, wages, direct sourcing, and house
brands will all be sources of earnings growth. Smaller Dairy Farm (DFI SP, BUY TP US$9.96). We maintain our BUY
players are trying to increase their store network by bidding rating on Dairy Farm (DFI) with a higher SOTP-based TP of
for shop space at higher rates. US$9.96. Current share price ex-Yonghui values DFIs core
business at just 21.4x forward PE, below the regional peer
The online business is growing, with RedMart, Tesco, and average and its 9-year historical average forward PE of 25x.
the imminent entry of Amazon Prime. But new online We see growth supported by more margin improvements
businesses currently face a market-share tussle with physical ahead. It delivered stronger 2H16 earnings, driven by better
supermarkets, which are conveniently located across operating efficiencies as anticipated. We continue to be
Singapore. The cost of online fulfilment currently remains positive on further cost efficiencies from enhanced
high, with RedMart still recording losses and low operational processes through distribution centres,
concentration of grocery retail incumbents in the online procurement and IT systems. In line with growth traction, we
space. We hold the view that grocery online retail will also expect DPS to increase in FY17F based on c.60-56%
eventually take off. But for now, profitability is not expected payout ratio, leading to slightly higher dividend yield. Our
in this space. More players that could come in in the future target price of US$9.96 is derived from sum-of-parts
include Tesco Online Ventures and Amazon Prime. valuation methodology. We value DFI's core business at
US$9.34 based on DCF and the 20% stake in Yonghui, based
Grocery retail real estate especially for HDB estates is on the market value of US$1.09 and net debt of US$0.47 per
intensifying. Recent bidding of supermarket shop space in share.
HDB estates have risen to S$15-20 per square feet. While
HDBs supply of new supermarket outlets remains robust,
higher rental rates if they persist will increase operating
costs and lead to lower margins.
Page 39
Indonesia
Low MGR penetration at 17%, 5-year CAGR projected 9.8% CAGR growth for convenience stores from 2014-16.
at 5.3% led by convenience stores Convenience stores posted the highest growth among MGR
Government controlling MGR expansion locations from 2014-16. It is expected to continue doing the same
Sluggish household spending while competition remains from 2016-21, with a CAGR of 7.8% as people value the
keen convenience and close proximity to residential districts that
Negative on MPPA on weak demand, competition and they offer. Both supermarkets and hypermarkets declined
higher opex from 2014-16 in US$ terms due to exchange-rate differences.
These two segments are forecast to grow at a CAGR of 2.5%
Market size and growth and 1.6%for the next five years, led by outlet expansions.
US$101b grocery retail market, US$17b MGR, 17% MGR Convenience stores are expected to grow the fastest
penetration. Indonesias US$101b grocery retail market was going forward
the biggest in 2016 among the five SEA countries. The US$b 2014 2016 2014-16 2016-21
market size increased marginally from 2014. Grocery retail CAGR% CAGR%
was largely dominated by traditional grocery retail as it has a Supermarkets 5.34 5.20 -1.3% 2.5%
far-reaching presence into all parts of the country, rural areas Hypermarkets 3.28 3.00 -4.4% 1.6%
in particular. MGR penetration increased by one percentage
Convenience
point to 17% in 2016, driven by outlet expansion and the
stores 7.62 9.18 9.8% 7.8%
adoption of unique selling points such as fresh produce by
Others 0.036 0.041 6.7% 3.8%
supermarkets and hypermarkets.
MGR 16.28 17.42 3.4% 5.3%
Market size of MGR is expected to reach US$23b in 2021
US$b Modern Traditional Total Penetration Traditional grocery retail dominates the grocery retail
2014 16.27 83.23 99.50 16% market
2016 17.40 83.93 101.33 17%
Hypermarkets
CAGR% 3.4% 0.4% 0.9% 2014-16 Supermarkets
3%
5%
2021 22.53 97.45 119.98 19%
Convenience
CAGR% 5.3% 3.0% 3.4% 2016-21
stores
Source: Euromonitor, DBS Bank 9%
3.4% CAGR for grocery retail from 2016-21. Grocery retail

grew at a rate of 0.9% CAGR from 2014-16 and the growth
is expected to increase to 3.4% CAGR for the next five years, Traditional
driven by traditional grocery retail. MGR and traditional 83%
grocery retail are also expected to grow at a faster pace at

5.3% and 3% CAGR, respectively. Source: Euromonitor, DBS Bank
MGR forecast to grow at 5.3% CAGR, led by Indonesias MGR is dominated by convenience stores
convenience stores
IDR trillion Supermarkets
400 30%
350
300
250 Convenience
stores
200 53%
150
100
50 Hypermarkets
17%
0
2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F
Convenience stores Supermarkets Hypermarkets Forecourt retailers Source: Euromonitor, DBS Bank
Page 40
Indonesias MGR market players Consumers are now more demanding. Supermarkets are
focusing on grocery products and unique selling points such
Other MGR Indomaret as fresh produce. Hypermarkets, on the other hand, are
27%
31% focusing more on the sales of non-grocery products due to
the higher profit margins. Consumers also enjoy purchasing
non-grocery products from hypermarkets due to the
aggressive promotions offered by retailers. Pricing is key for
grocery retail as consumers wants to obtain the maximum
value from their grocery purchases. In addition to price,
Dairy Farm International
Holdings Ltd consumers are also considering other factors such as quality,
5%
Matahari Putra
customer service, store location, and presence of value-added
Alfamart
Prima Tbk PT
Trans Retail 24% services when making their purchase decisions.
6%
Indonesia PT
7%
Source: Euromonitor, DBS Bank Online grocery retail sprouting. Online grocery retailing is
growing as many Internet retailers have added grocery
Indonesias grocery retail market players products to their product portfolio. Many special events and
promotions were also held to entice consumers to switch to
Indomaret Alfamart
5% 4% Trans Retail online retailing.
Indonesia PT
1%
Other MGR Traditional grocery retailers taking on the challenge by MGR.
7% Despite the growth of modern grocery retailing, traditional
grocery retailing still prevails due to the deep penetration into
many areas in the country, especially the smaller and more
remote areas where modern grocery retailers are unable to
reach. Traditional retailers have also made efforts to compete
Traditional with modern retailers by renovating and providing home
83%
delivery services. The Indonesian government are also starting
to control the locations where new modern grocery retailers
can expand to and has stopped issuing licenses for the
opening of new convenience stores to protect traditional
retailers. However, with the limited enforcement of laws and
Developments
the opportunity present in in less saturated areas outside
Java, modern retailers are still expected to continue with their
Outlet expansion outside key urban areas. Many Indonesians
outlet expansion plans. One interesting development is Go-
enjoy visiting hypermarkets to replenish their grocery supplies.
Jek from Gojek Indonesia PT. Consumers can utilise Go-Jek
However, due to their increasingly busy lifestyles, many are
riders to purchase groceries and have them delivered. This has
preferring convenience stores and forecourt retailers as they
been well-received because of the traffic jams in large cities
are closer to their homes. This is helped by the aggressive
which makes travelling by cars time-consuming.
outlet expansion of convenience stores, which includes
expanding into third-tier cities across the country and the
Key sector trends
addition of new products besides groceries. For example,
Indomarco Prismatama PT launched cheaper and easier
Household spending remained sluggish in 1H17. Retailers
franchise agreements and schemes as well as a Take Over
indicated weak sales during the Lebaran season with the
scheme to aid their outlet expansion plans. Indomarco also
Food and Beverage Association reporting that the industrys
embarked on its online retail plans and diversified into several
sales fell by 10% from last years Lebaran season. While
brand extensions, namely Indomaret Point, Indomaret Fresh,
prices of Indonesias key export commodities (rubber, coffee
and Indomaret Plus to increase its actual sales. Hypermarkets
and Crude Palm Oil) trended up in 2H16, the rally was not
and supermarkets have also increased their outlet counts and
sustainable, hence it has not been able to support consumers
supermarkets are reaching out to consumers in second-tier
spending power ahead of Lebaran. In addition, the delay in
cities such as Solo.
payment of civil servants extra salary in June also exacerbated
the weak spending. We note that the listed grocery retailers
saw their sales growth decelerating in 1Q17, with flattish to
negative SSSG. Some of them did not to see any meaningful
improvement approaching Lebaran season.
Page 41
Better demand outlook in 2H17 but competition remains Stock picks

tight. Despite the weak 1H17, we expect the momentum of
economic recovery to continue in 2H17, supported by an Matahari Putra Prima (MPPA IJ, FULLY VALUVED TP Rp450).
increase in the governments spending and steady electricity We continue to see earnings risk on the horizon as MPPA
tariffs. Nonetheless, we expect consumers to continue embarks on its new strategy to capture market share by
shifting away from hypermarkets to minimarkets, as the latter cutting prices, aiming to narrow the gap between itself and
has continued to expand rapidly by adding around 3,000 competing regional supermarkets and minimarkets. Earnings
stores annually over the country. We see pressure on should come under pressure on weak demand and increase in
hypermarkets margin to persist as operators try to compete opex through the write-off of supplier rebate receivables.
on price against minimarkets as well as regional
supermarkets.
Page 42
Malaysia
Moderate MGR penetration at 42%, 5-year CAGR 14.2% CAGR for convenience stores from 2016-21. All the
projected at 7.3% led by convenience stores segments in MGR fell from 2014-16. Hypermarkets posted
Convenience store expanding and gaining popularity the biggest decline as the leading players engaged in
Competition, costs and weak consumption dampening aggressive price competition and supermarkets and
the sector convenience stores posed competition. Supermarkets and
No stock calls on earnings risk and high valuation hypermarkets are expected to grow during 2016-21.
Similarly, convenience stores are forecast to grow at a 14.2%
Market size and growth CAGR for the next five years due to outlet expansion and the
convenience they are able to offer to busy consumers.
US$15b grocery retail market, US$6.3b MGR, 42% MGR Overall, MGR is expected to grow at a 7.3% CAGR from
penetration. Malaysias grocery retail market fell to US$15b in 2016-21.
2016 from US$18b in 2014 due to softening economic
conditions in Malaysia in 2016 which dampened consumer Convenience stores are expected to grow the fastest
confidence. The market is expected to pick up for the next going forward
five years and is forecast to reach US$21b in 2021. MGR US$b 2014 2016 2014-16 2016-21
penetration remained unchanged and there is no expectation CAGR% CAGR%
of any changes in 2021 as well.
Supermarkets 2.46 2.07 -8.3% 6.3%
Hypermarkets 3.67 2.83 -12.2% 5.8%
The MGR market is expected to reach US$9b in 2021
Convenience
US$b Modern Traditional Total Penetration
stores 0.89 0.83 -3.4% 14.2%
2014 7.68 10.43 18.11 42% Others 0.66 0.56 -7.9% 6.7%
2016 6.29 8.78 15.07 42% MGR 7.68 6.29 -9.5% 7.3%
CAGR% -9.5% -8.3% -8.8% 2014-16 Source: Euromonitor, DBS Bank
2021 8.95 12.29 21.24 42%
CAGR% 7.3% 7.0% 7.1% 2016-21 Traditional grocery retail is 58% of total grocery retail
Source: Euromonitor, DBS Bank Forecourt retailers
Convenience stores 3%
5%
7.1% CAGR grocery retail growth for the next five years.
Grocery retail declined by a staggering 8.9% CAGR for the Supermarkets
past two years but is expected to grow at a 7.1% CAGR from 14%
2016-21, approximately equally contributed by both MGR

and traditional grocery retail. MGR and traditional grocery
retail declined for the past two years but they are forecast to Traditional
59%
grow at a 7.3% and 7% CAGR, respectively for the next five Hypermarkets
19%
years.
MGR forecast to grow at 7.3% CAGR, led by Source: Euromonitor, DBS Bank
hypermarkets
M YR million
Malaysias MGR is dominated by hypermarkets
35000
Forecourt
30000 retailers
Discounters 8%
1%
25000
Convenience
stores Supermarkets
20000 13% 33%
15000
10000
5000
0
2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F
Hypermarkets Supermarkets Convenience stores
Hypermarkets
Forecourt retailers Discounters
45%
Source: Euromonitor, DBS Bank Source: Euromonitor, DBS Bank
Page 43
Malaysias MGR players label products as these products are usually perceived as low-
quality goods. With regards to online grocery retailing, it is
Dairy Farm
International still in its infancy as there are limited players. Many elderly
Holdings Ltd shoppers still prefer to purchase groceries from physical
Other MGR 30%
40% stores, whereas young and tech-savvy consumers are more
supportive of online grocery retail due to the convenience it
offers.
MGR have an advantage over traditional grocery retailers.

Traditional grocery retailers are still generating higher value
Tesco Plc
Econsave Cash & 17% sales because of their strategic locations, which are usually
Carry Sdn Bhd AEON Group
6% 7% walking distance to the homes of the consumers. However,
Source: Euromonitor, DBS Bank modern grocery retailers do have the advantage of having
comprehensive product portfolios, longer opening hours as
Malaysias grocery retail market players well as the ability to provide a more comfortable shopping
Dairy Farm
experience. Pricing is important and many retailers offer
International aggressive price discounts on a weekly or bi-weekly basis. For
Holdings Ltd
13% example, GCH Retail (M) Sdn Bhd retained its top position in
Tesco Plc grocery retail through strategic marketing plans and its
7%
investments in several different outlet formats. GCH Retail
AEON Group
3% (M) Sdn Bhd also offers the lowest priced products as well as
Econsave Cash weekly promotions. Major retailers are expected to engage in
& Carry Sdn Bhd
3% outlet expansions and to extend their daily operating hours to
Traditional
58% 24 hours.
Other MGR
16%
Key sector trends
Keen competition, weak consumption dampening the sector.

Consumer spending remains unexciting, with the Malaysian
Institute of Economic Researchs Consumer Sentiments Index
Developments
for 1Q17 at 76.6 points, significantly below the 100-point
threshold and pointing to a sluggish recovery. In addition,
Aggressive promotions. More grocery retail brands are
intensified competition in the sector, particularly from new
entering the Malaysian market and consumers are
comers such as Lulu Hypermarket and aggressive expansion
increasingly interested in getting the best deal from the many
by convenience store operators, has led to heavier price
options. Many grocery retailers provide frequent price
discounts. Although potential election goodies could help
promotions, with hypermarket retailers registering negative
temporarily create feel good sentiment, we do not expect it
performances because of the aggressive price promotions. For
to be a significant re-rating catalyst for the sector.
example, Mydin, a discounter chain, has been drumming up
strong demand among low-income groups by selling daily
Convenience stores continued to see strong expansion.
essentials at competitive prices. In addition, Mydin has been
Malaysians increasingly frantic lifestyles have also resulted in
able to expand rapidly due to its active advertising campaigns.
rising demand for convenience stores, which continue to see
strong expansion into the untapped market. As such, we are
Convenience stores are preferred among consumers.
not surprised that the management of 7-Eleven Malaysia has
Convenience stores are gaining popularity because they have
maintained its new store expansion plan at about 200
comprehensive product portfolios and are located close to
stores/annum, while Bison Consolidated has plans to open 70
residential areas, making them very convenient for
new stores per year in FY17- 18.
consumers. Convenience stores have also introduced quick
meal solutions as well as instant noodles and hot drinks to
Margin may come under pressure. We also expect margin to
cater to the busy consumers. Consumers on the whole prefer
come under pressure in view of (1) increased cost, partly
supermarkets and convenience stores to hypermarkets due to
driven by a higher minimum wage and more expensive
the faster checkout queues and lower consumer traffic within
imported products due to a weak Ringgit, and, (2) increased
each store. To this end, hypermarkets are focused on selling
competition in the sector, which restricts retailers ability to
non-grocery products to cater to different consumer needs.
pass on higher costs.
Modern retailers are putting in more effort to provide better
packaging and rebate vouchers to boost the sales of private-
Page 44
Stock pick
7-Eleven Malaysia (SEM MK, NR, Potential Target RM1.58). Bison Consolidated (BISON MK, NR, Potential Target
Although the group offers one of the best exposures to a RM2.02). Bison has posted an impressive profit CAGR of
potential consumption recovery story in Malaysia being the 15.7% over FY13-FY16 despite the challenging retail
largest operator in the standalone-convenience store segment environment. We believe that the group has successfully
(82% market share) with an aggressive new store expansion established a feasible business model in Malaysias retail
plan (about 200 stores/annum) to support topline growth space. With its upcoming new outlet openings and gradual
we are concerned that high operating expenses arising from recovery in consumer sentiment, we are optimistic that the
new store expansion could weigh on its earnings. group will continue to record double-digit earnings growth at
Furthermore, a slow recovery in consumer sentiment could CAGR of 24.7% over FY17-19. Despite its bright growth
cap its near-term earnings growth. Our fair value for 7- prospects, we believe it is fairly valued at this juncture. We
Eleven (M) stands at RM1.58, based on 29x PE, which is in have derived a TP of RM2.02, pegging at 25x FY17F PE,
line with its regional peers average PE. which is a 20% discount to its regional peers average PE,
after taking into account its smaller size (relative to peers).
Page 45
Thailand
Moderate MGR penetration at 46%, 5-year CAGR 9.8% CAGR for convenience stores from 2016-21.
projected at 7.5% led by convenience stores Convenience stores posted the strongest growth from 2014-
Convenience store growing with more products, services 16 of 4% (CAGR), due to outlet expansion by leading players.
Margins to expand on product mix, cost management All segments of MGR are expected to grow over the next five
Positive on CPALL on easing competition, margin years, with convenience stores posting the strongest growth
expansion of 9.8% CAGR on the back of continuing aggressive outlet
expansion by players into metropolitan and provincial areas.
Market size and growth Supermarkets and hypermarkets are expected to be driven by
Internet retailing in the long term. Overall, MGR is forecast to
US$52b grocery retail market, US$24b MGR, 46% MGR grow at a CAGR of 7.5%.
penetration. Thailands grocery retail market size decreased to
US$52b in 2016 due to exchange-rate differences but it is Convenience stores are expected to grow the fastest
expected to reach US$68b in 2021. MGR penetration going forward
increased to 46% in 2016, driven by convenience stores and US$b 2014 2016 2014-16 2016-21
is forecast to continue increasing to 51% in 2021. Sales of CAGR% CAGR%
traditional grocery retail has been declining for the past two Supermarkets 4.63 4.72 1.0% 6.4%
years, due to exchange-rate differences, but is expected to Hypermarkets 8.08 7.97 -0.7% 5.2%
make a turnaround to post growth of 3.3% CAGR for the
Convenience
next five years.
stores 9.11 9.86 4.0% 9.8%
Others 1.66 1.62 -1.2% 6.7%
MGR 23.48 24.17 1.5% 7.5%
US$b Modern Traditional Total Penetration Source: Euromonitor, DBS Bank
2014 23.47 29.70 53.17 44%
2016 24.17 28.20 52.37 46% Traditional grocery retail is 54% of total grocery retail
CAGR% 1.5% -2.6% -0.8% 2014-16 Forecourt retailers
2021 34.65 33.10 67.75 51% 3%
Supermarkets
2016-21 9%
CAGR% 7.5% 3.3% 5.3%
Hypermarkets
15%
Grocery retail to grow at a 5.3% CAGR from 2016-21.
Grocery retail declined 0.8% CAGR from 2014-16 but is Traditional
forecast to grow at a 5.3% CAGR for the next five years, 54%
driven by MGR. MGR is expected to grow at a faster pace

than traditional grocery retail, with a 7.5% and 3.3% CAGR,
Convenience stores
respectively, as consumers prefer buying from convenience 19%
stores to traditional formats.
MGR forecast to grow at 7.5% CAGR, led by
convenience stores Thailands MGR is dominated by convenience stores
T HB billion
Supermarkets
1400
21%
1200
1000
Convenience
stores
800 44%
600
400
200
0 Hypermarkets
2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F 35%
Hypermarkets Convenience stores Supermarkets Forecourt retailers
Page 46
Thailands MGR market players Innovation in online grocery retailing. Online grocery retailing
is gaining traction as it is a convenient platform for
Other MGR
21% consumers to do their grocery shopping. As a result, grocery
CP All - 7-Eleven retailers have launched many services and promotions. For
33%
FamilyMart Uny Holdings Co example, Tesco Lotus introduced many new services in 2016;
Ltd
2%
it offers a variety of channels to deliver their products, and
Central Group
consumers can order online and pick up the products at any
4% Tesco Lotus branch using Click-and-Call. Similarly,
customers can order online and receive the products at
several condominium lockers in Bangkok using ShopBox24.
Big C Supercenter PCL
14% Alternatively, HappyFresh delivers Tesco Lotus products to
Tesco Plc
consumers within two hours. Besides delivery services, Tesco
26% also incorporated iBeacon, by which customers will receive
Source: Euromonitor, DBS Bank special privileges or discounts when they walk pass the
beacon points in Tesco if they have installed the Tesco Lotus
Thailands grocery retail market players application on their smartphones.
CP All - 7-Eleven
15% Convenience stores are also innovating. Convenience stores
are focusing on food. For example, 7-Eleven launched the
Food place business model to sell fresh food and a wide
Tesco Plc
12% variety of food products. The food products are offered at
reasonable prices largely because 7-Eleven has the economies
Traditional
54% of scale to do so. Apart from selling food, 7-Eleven is looking
Big C Supercenter PCL
7% towards outlet expansion as well as offering laundry services
and opening restaurants at their stores. 7-Eleven also offers
Central Group
2% many special promotions during the year. Another
Other MGR
10% convenience store retailer that is gaining attention is Lawson
108. Lawson 108 focuses on selling Japanese products and is
looking to extend its footprint across the country using both
franchises and its own investment. Its main target group is
Developments
urban dwellers.
Convenience stores, hypermarkets and supermarkets serve
Growth strategies include online, ready-to-eat food and store
different consumer needs. The interest in convenience stores
expansion. Convenience stores will be expected to be
among consumers stems from the convenience of parking,
aggressive in expanding their outlets into metropolitan and
the modern and attractive stores, their proximity to their
provincial areas. They will also seek to provide more food and
residential areas, and the variety of food which they can
drinks intended for instant consumption as well as improve
purchase anytime during the day. Convenience stores also
the prices and quality of their products. As for online grocery
provide special promotions to entice consumers.
retail, logistic is an important area of focus as consumers will
Hypermarkets are already present in key target areas and thus
expect to receive their products on time. Online marketing
the outlet expansion might be slower. Hypermarkets offer
should also be considered.
promotions to consumers, especially since most of their
consumers are low and middle-income groups which were
badly hit by the drought and the economic slowdown in
2016. Supermarkets, having a consumer base comprising
mostly middle and high-income group, focus on providing
healthier products such as organic food as their consumers
are increasingly concerned about quality.
Page 47
Food retail held up despite weak outlook. The sentiment CPALL (CPALL TB, BUY TP Bt75.00). We maintain our BUY
overall in Thailand is dull as there hasnt been a near-term rating as we like CPALL for its business resilience, continuous
catalyst that would boost the economy so far. Quarter-to- success in expanding their network, margin expansion from
date statistics for Thailands retail sector hasnt been exciting an improving product mix, and lower interest expense on
amid a challenging environment. Additionally, there was debt repayment and refinancing. We believe the cash-and-
impact from the high base in April last year caused by the carry business will no longer be an earnings drag to the group
governments stimulus measure and different weather this year, as its revenue growth and gross margin expansion
conditions (hot and drought last year vs a lot of rain this will be fueled by softer competition following BIGCs business
year). Accordingly, SSSG of most of the retailers QTD, strategy to discontinue giving discount coupons to big-basket
including food and discretionary ones, have been in negative customers. Coupled with convenient stores continuous
territory. However, the food retailers such as CPALL did better aggressive expansion plan, resilient SSSG, and its efforts to
than peers with milder negative SSSG. boost gross margin via a product-mix strategy, we expect the
group to deliver 21% y-o-y growth for FY17F earnings.
Expect margin expansion. Despite a slowing sales outlook, we Additionally, we are not concerned about market saturation
still expect positive FY17F earnings growth for the sector, as we think that the CVS market in Thailand still has room to
driven by margin expansion. Earnings growth of all retailers grow. Despite aggressive store rollouts, average customer
has been positive YTD and we expect this to continue for the visits per store have been maintained at above 1,200
rest of the year. The factors that have been widening margin customers per store per day, the highest among global 7-
are product mix, cost management, and smaller interest Eleven store operators. Given its small-sized CVS store format,
expense (from lower cost of debt and outstanding debt). we believe its aggressive plan for outlet expansion is
achievable, even in Bangkok, in view of the upcoming new
We note that there will be a cremation ceremony for mass transit lines.
Thailands late King Bhumibhol in October this year. We
believe Thailand might face another period of slower
consumption as people will be in mourning once again.
However, the length and the magnitude will be much less
than in October last year as the event has been in the
calendar for a year.
Page 48
The Philippines
Moderate MGR penetration at 30%, 5-year CAGR 19.4% CAGR for convenience stores from 2016-21.
projected at 22% led by convenience stores Convenience stores grew at the fastest pace from 2014-16 at
Online still unpopular, convenience stores are gaining 13.5% CAGR due to their convenience and accessibility
traction especially for urban workers. The format is expected to
Demand resilient despite higher inflation continue to post the fastest growth from 2016-21, with a
Positive on RRHI, Neutral on PGOLD CAGR of 19.4%. Supermarkets and hypermarkets are
forecast to continue their growth as players look to expand
Market size and growth into areas that have low MGR penetration rural and
emerging markets. MGR is expected to grow at a 11.1%
US$43b grocery retail market, US$13b MGR, 30% MGR CAGR for the next five years.
penetration. The Philippines grocery retail market increased
from US$41.5b in 2014 to US$42.9b in 2016, driven by Convenience stores are expected to grow the fastest
MGR. MGR penetration has also increased to 30% on the going forward
back of outlet expansion and gradual shifting of preference US$b 2014 2016 2014-16 2016-21
for quality products from MGR. Traditional grocery retail CAGR% CAGR%
continues to be popular due to its proximity to residential Supermarkets 8.81 9.66 4.7% 9.7%
areas and consumers familiarity with the it. Looking forward, Hypermarkets 2.27 2.47 4.3% 13.3%
the market size is expected to reach US$62.6b and
Convenience
penetration, 35% in 2021.
stores 0.59 0.76 13.5% 19.4%
Others 0.088 0.10 6.6% 10.9%
MGR 11.76 12.99 5.1% 11.1%
US$b Modern Traditional Total Penetration Source: Euromonitor, DBS Bank
2014 11.77 29.71 41.48 28%
2016 12.99 29.87 42.86 30% Traditional grocery retail dominates the grocery retail
CAGR% 5.1% 0.3% 1.6% 2014-16 market
2021 21.98 40.62 62.60 35% Convenience Hypermarkets
stores 6%
CAGR% 11.1% 6.3% 7.9% 2016-21 2%
Supermarkets
Higher growth for grocery retail from 2016-21. Grocery retail 22%
growth is expected to increase from 1.6% CAGR for the past
two years to 7.9% CAGR from 2016-21. Both MGR and
traditional grocery retail are forecast to post much higher
Traditional
growth of 11.1% and 6.3%, respectively, over the next five 70%
years as consumers needs and purchasing power increases.
MGR forecast to grow at 11.1% CAGR, led by Source: Euromonitor, DBS Bank
supermarkets
Philippines MGR is dominated by supermarkets
PHP billion
1000 Convenience
stores Others
900 6% 1%
800
700 Hypermarkets
600 19%
500
400
300
200
100
0
2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F
Supermarkets
Supermarkets Hypermarkets Convenience stores 74%
Forecourt retailers Discounters
Source: Euromonitor, DBS Bank Source: Euromonitor, DBS Bank
Page 49
The Philippines MGR market players Worsening traffic conditions and busy lifestyles are driving
online grocery retailing. Hypermarkets remain popular among
SM Retail Inc
22% consumers as they carry an extensive selection of grocery and
non-grocery products. Meanwhile, supermarkets are popular
Other MGR among consumers for groceries and household consumables.
42%
Hypermarkets and supermarkets continue to focus more on
grocery products due to the higher demand and sales.
Puregold Price
Club Inc
13%
Online still unpopular. Online grocery retail continues to be
unpopular as many consumers still prefer to visit the physical
JG Summit
Holdings Inc stores to do their grocery shopping to ensure the quality and
Metro Retail 8%
Stores Group Seven & I Rustan Group of affordability. Consumers are also not confident to transact
3% Cos
Holdings Co Ltd
4% 8% through online means. However, with worsening traffic
Source: Euromonitor, DBS Bank conditions and lack of time, consumers are starting to explore
the online alternative. Online retailers, Metromart and
The Philippines grocery retail market players Robinsons Retail Group and SM Retail, utilize both desktop
SM Retail Inc Puregold Price
and mobile applications, which focus on convenience,
7% Club Inc security, and reliability, to reach out to more consumers.
4% JG Summit
Holdings Inc
2%
MGR expected to continue outlet expansion plans. Traditional
Rustan Group of
Cos grocery retailers continue to reign because they are able to
2%
capture the underdeveloped and emerging markets, which
Other MGR
modern grocery retailers have been unable to penetrate; they
15% have been able to form close personal relationships with the
consumers and provide perks and discounts from time to
Traditional time. However, some consumers prefer modern grocery
70%
retailers due to the quality and quantity of their product
selection, especially those of imported brands. Both modern
and traditional grocery retailers position themselves according
to price segments, altering their prices, products, and location
of their stores accordingly. Modern grocery retailers are
Developments
expected to engage in outlet expansion to reach out to more
consumers, focusing mainly on convenience stores as
Convenience stores are gaining popularity. Convenience and
business districts and residential neighborhoods usually have
accessibility, due to the lack of free time as well as poor
smaller spaces available. For example, multiformat operator
traffic conditions, are important considerations for
SM Retail maintains its strong market position by opening
consumers. Therefore, grocery retailers are focusing more on
new outlets in locations that are more accessible to
opening smaller store formats such as convenience stores in
consumers. Philippine Seven Corp leveraged its operational
residential areas and business districts closer to consumers, as
network and has also opened new outlets in new and
well as providing grocery delivery services and online grocery
emerging markets.
services to consumers. Convenience stores appeal to young
and independent workers who enjoy eating out or purchasing
take-away. These convenience stores usually have bright and
cool interiors, a wide product selection, and are efficient.
Consumers usually look to traditional grocery retailers located
within their neighborhoods when they want to purchase food
for immediate consumption and to convenience stores to
satisfy their needs for a simple meal or a quick snack.
Page 50
Demand remains resilient post-election and in the face of Puregold Price Club (PGOLD PM, HOLD TP P41.90). We are
higher inflation. Consumer confidence was elevated in 2Q17 projecting net profit growth of 9.2%/9.7% for FY17F/FY18F.
and grocery retailers under our coverage have been The slower earnings growth is due to diminishing impact of
experiencing solid SSSG despite the high base last year. new stores on revenue growth, higher inflation, and
Demand is underpinned by a constructive industry backdrop, competition. The cash conversion cycle (CCC) will continue to
rising household disposable income, manageable inflation, deteriorate on rising inventory and management preference
and robust economic activity. Should Package 1 of the to pay suppliers early to avail discounts. The industrys
proposed tax reform package (which includes lower income outlook remains bright and PGOLDs long-term earnings
tax rates) comes through, there could be a boost in grocery prospects are attractive. However, we anticipate better entry
spend of households. While SSSG remain solid at 3%-4%, points ahead. Our TP is P41.90, based on SOTP valuation
the impact of new store rollouts to sales is becoming less methodology. This implies PE of 19x FY17F and 18x FY18F
pronounced because the growth of stores net selling area is earnings.
slowing, due to a high base. Gross margins are still
expanding, albeit at a slower pace. Expenses are being Robinsons Retail Holdings (RRHI PM, BUY TP P101). We
suppressed to offset the impact of end of contractualisation. continue to have BUY rating on Robinsons Retail Holdings
Hence, profit margins are expected to remain stable but with (RRHI) with a SOTP-based TP of P101.00. While our forecast
room for an uptick. reflects the lower end of managements GFA guidance, we
see ample room for upside as demand has remained resilient
The cash conversion cycle problem. Retailers under our post-elections and in the face of rising inflation. Margins
coverage continue to experience longer cash conversion could expand or at least remain stable on fewer store closures
cycles. Inventory is rising while payable days continue to of non-performing stores, mitigating the adverse impact of
shrink. Based on our channel check, retailers are paying early end of contractualisation (ENDO). With its large war chest
to be prioritised and avail of discounts offered by larger and better inventory management, RRHI is able to alleviate
suppliers. We believe suppliers have gained the upper hand in deterioration of it its cash conversion cycle (CCC) days
bargaining, given the competition between the big three brought about by from fewer payable days. The stock is
retailers (SM Retail, Puregold, and Robinsons Retail). Inventory inexpensive, trading below historical average and its regional
management will be key in balancing margins and cash peers. Our TP of P101.00 has an implied FY18F PE of 22.4x
conversion cycle days. which is slightly above the stocks historical forward PE 21.8x.
Page 51
Stock Profiles
Page 52
Singapore Company Guide
Dairy Farm
Version 5 | Bloomberg: DFI SP | Reuters: DAIR.SI Refer to important disclosures at the end of this report
DBS Group Research . Equity 6 Mar 2017
BUY Efficient operations to drive growth

Last Traded Price ( 3 Mar 2017): US$8.51 (STI : 3,122.34)
Price Target 12-mth: US$9.96 (17% upside) (Prev US$7.18) Maintain BUY, on track for better profitability. We maintain our
BUY rating on Dairy Farm (DFI) with a higher SOTP-based TP of
Potential Catalyst: Earnings turnaround, margin recovery US$9.96. Current share price ex-Yonghui values DFIs core
Where we differ: In line business at just 21.4x forward PE, below the regional peer
Analyst average and its 9-year historical average forward PE of 25x. We
Alfie YEO +65 6682 3717 alfieyeo@dbs.com
Andy SIM CFA +65 6682 3718 andysim@dbs.com see growth supported by more margin improvements ahead.
2H16 results delivered stronger earnings driven by better
Whats New operating efficiencies as anticipated. We continue to be positive
2H16 and FY16 results above, driven by margin on further cost efficiencies from enhanced operational processes
recovery through distribution centres, procurement and IT systems. In line
with growth traction, we also expect DPS to increase in FY17F
Final DPS of 14.5 UScts declared based on c.60-56% payout ratio, leading to slightly higher
Expect more operational efficiencies to be realised dividend yield.
Maintain BUY, TP raised to US$9.96 2H16 results ahead. Earnings came in at US$270m (+16% y-o-y)
led by margin expansion, with revenue growth of just 1.7% y-o-
y (US$5.6bn). Revenue growth was driven strongly by North
Price Relative Asia, largely its HK Supermarkets and HK & China convenience
US$
stores, Health & Beauty, and Home Furnishing segments. Store

Relative Index
14.0
13.0 206
12.0
11.0
186
166
rationalisation in Singapore and Indonesia helped to improve
10.0
9.0
146
126 margins in supermarkets/hypermarkets segment though the
closure of loss making stores. There was also improved
8.0 106
7.0 86
6.0 66
5.0
Mar-13 Mar-14 Mar-15 Mar-16
46
Mar-17
contribution from Maxims and Yonghui at the associate level.
Dairy Farm (LHS) Relative STI (RHS)
Valuation:
Forecasts and Valuation
FY Dec (US$ m) 2015A 2016A 2017F 2018F SOTP valuation methodology. Our target price of US$9.96 is
Revenue 11,137 11,201 11,642 12,297 derived from sum-of-parts valuation methodology. We value
EBITDA 732 784 831 895 DFI's core business at US$9.34 based on DCF and the 20%
Pre-tax Profit 503 555 580 634 stake in Yonghui based on the market value at US$1.09 and
Net Profit 424 469 486 524
Net Pft (Pre Ex.) 428 463 486 524 net debt at US$0.47 per share.
Net Pft Gth (Pre-ex) (%) (14.3) 8.1 4.9 7.9
EPS (US cts.) 31.3 34.7 35.9 38.8 Key Risks to Our View:
EPS Pre Ex. (US cts.) 31.7 34.2 35.9 38.8
EPS Gth Pre Ex (%) (14) 8 5 8
Significant earnings disappointment. We expect earnings
Diluted EPS (US cts.) 31.3 34.7 35.9 38.7 growth to accelerate into FY17F as management rings in
Net DPS (US cts.) 20.0 21.0 23.0 23.0 better operating efficiencies. We believe that earnings would
BV Per Share (US cts.) 102 111 126 142 have to disappoint significantly to derail our positive bias on
PE (X) 27.2 24.5 23.7 22.0
PE Pre Ex. (X) 26.9 24.9 23.7 22.0 the stock. Nonetheless, our earnings forecast is conservative.
P/Cash Flow (X) 16.4 21.2 13.4 21.8
EV/EBITDA (X) 16.5 15.6 14.3 13.2
Net Div Yield (%) 2.4 2.5 2.7 2.7 At A Glance
P/Book Value (X) 8.4 7.6 6.7 6.0 Issued Capital (m shrs) 1,352
Net Debt/Equity (X) 0.3 0.4 0.1 0.1 Mkt. Cap (US$m/US$m) 11,509 / 11,509
ROAE (%) 30.2 32.6 30.2 28.9
Major Shareholders (%)
Earnings Rev (%): 2 1 Jardine Matheson Holdings 77.6
Consensus EPS (US cts.): 37.4 41.6
Free Float (%) 22.4
Other Broker Recs: S: 1 H: 2
3m Avg. Daily Val (US$m) 2.8
Source of all data on this page: Company, DBS Bank, Bloomberg ICB Industry : Consumer Services / Food & Drug Retailers
Finance L.P.

ed: JS / sa:JC, PY
Page 53
Company Guide
Dairy Farm
WHATS NEW
Results review
2H16 & FY16 results ahead. FY16 core earnings was Kong, lower gross margins and poor performance in Malaysia
US$463m (+8.1% y-o-y), led by margin expansion, with due to competition and its weak economy.
revenue growth at just 0.6% y-o-y (US$11.2bn). Revenue was
driven by North Asia, convenience stores, Health & Beauty, IKEA continues to grow. Home furnishing segment continues
and Home furnishing segments. Closure of underperforming to grow in FY16 with revenue growing by 5% y-o-y to
stores and business units in Singapore and Indonesia US$597m with the same store count of nine. IKEA delivered
supermarkets/hypermarkets helped EBIT margins improve to high operating margins of 11-12%, way above group
4.0% (+0.1ppt y-o-y). The variance to our estimates came operating margins of 4%. Even though it only contributed
from lower opex, which is a direct result of these store 5% to revenue in FY16, it contributed a much higher c.16%
closures. Yonghui and Maxims associate/JV income for the of operating profit. A continued improvement in sales mix
full year was US$118m, in line with our US$120m estimate. from this segment should help to lift operating margins going
DFI declared a final DPS of 14.5 UScts, in line with our forward
estimate. On a half yearly basis, 2H16 earnings were
US$270m (+16% y-o-y) on the back of US$5.6bn (+1.7% y- Sales growth in focus
o-y) revenue.
Store expansion, multi-channel experience, differentiated
Store closures helped to deliver 3.9% y-o-y operating profit products and positioning to drive sales growth. DFIs 2017
growth for FY16 focus will be on sales growth. Post store rationalisation, it
plans to drive sales growth through store network expansion
North Asia leads revenue growth but profit margins were that include IKEA Tsuen Wan in Hong Kong (2H17), a second
lower. FY16s headline sales growth was led by North Asia store in Jakarta, and the scaling up of more 7-eleven
(US$6.6bn, +6.3% y-o-y) compared to sales declines in South convenience stores in Guangzhou, China. There is still room
and East Asia. Growth was driven by Hong Kong for product expansion such as skin care products in Health &
Supermarkets, and Hong Kong & China convenience stores. Beauty and building up private labels. Meanwhile, it is
As rents in Hong Kong however rose, North Asias FY16 developing e-commerce and increasing pickup points at IKEA,
operating profit (US$416.4m) margins declined by 0.3ppt to Wellcome and Marketplace to enhance multi-channel
6.3%. experience and fulfillment options. DFI will also strengthen
backend logistics to improve in-store availability of products
Store rationalisation in supermarket/hypermarkets led to through the setting up SAP merchandising system and
operating profit margin increase. The absence of non- establishment of new distribution centres in Malaysia and
performing stores in the supermarket/hypermarket segment Philippines. Its new SAP merchandising system would also
boosted segment margins. Store rationalisation in Singapore help in understanding its customers purchasing behavior and
and Indonesia saw segment operating margin increase by anticipating new trends.
0.4ppt to 3.1%. However, a net reduction of 8 stores in this
segment was a drag on segment revenue (US$6.2bm, -1.6% We see margins expanding going forward
y-o-y).
Distribution centres will increase the level of bulk handing
Convenience stores continue to grow. Convenience stores and cost savings. There are improvements underway at DFIs
revenue grew (US$1.95bn, +3.7% y-o-y) as a result of same back end operations, which should help to establish a more
store sales growth (SSSG) and an increase in store numbers efficient supply chain. Malaysia and Philippines will add two
(+46) particularly in China. Ready to eat food (RTE) operations new distribution centres going forward following the opening
in Hong Kong, Macau, Singapore and China, private labels, of a new distribution centre in Singapore last year. We
and post rationalisation of stores in Singapore also helped to anticipate that these fresh food distribution centres if
lift its FY16 operating profit margins to 3.8% (+0.4ppt). managed well, have the potential to drive down purchase
cost through bulk handing and higher supplier rebates.
Costs a drag on Health & Beauty margins. Health and Beauty
segment posted good revenue growth (US$2.4bn, +2.7% y- Direct sourcing into its own distribution centres saves
o-y) in FY16 driven by Hong Kong, China, Singapore and payment costs to middlemen. There are plans to move into
Philippines sales, despite a reduction of 100 stores from direct sourcing as well. With the new distribution centres, it
Indonesia and Hong Kong. Segment operating profit margin will be easier to source, warehouse and carry out direct
shrank by 0.6ppts to 7.2% y-o-y on higher rents in Hong sourcing activities. Direct sourcing cuts off the middlemen to
Page 54
Company Guide
Dairy Farm
realise better margins. Cooperation on joint sourcing with Core business valued at 21.4x forward PE
Yonghui for fresh food should develop as well to enhance Component US$ Note
DFI's share price 8.51 1
margins going forward. In addition, a new team has been put
Yonghui's 20% stake per DFI share 1.09 2
in place for procurement of products among the different Core share price ex Yonghui 7.42 3=1-2
business units. Higher economies of scale from these activities
will help improve margins going forward. Earnings FY17F 486 4
Yonghui contribution to DFI P&L 38 5
Interest expense on Yonghui loan 22 6
Valuations still compelling Core earnings ex Yonghui 469 7=4-5+6
DFIs core business currently valued below peers and average EPS ex Yonghui 0.35 8=7/1,352 shares
PE. Based on Yonghuis current market valuation, DFIs core PE ex Yonghui 21.4 3/8
Source: Company, DBS Bank
business is valued at 21.4x forward PE. This is lower than its
historical 9-year forward PE and peer average of 25x. Given
SOTP valuation
that margins have the potential to increase in the longer term
Component US$ Basis
to drive earnings growth, we raise our valuation on DFIs core EV ex cash 9.34 DCF
business based on DCF to US$9.34, which implies 25x Net debt per share -0.47 FY16s balance sheet
forward PE, in line with its historical valuation and peers. Value of Yonghui 1.09 Market value
TP 9.96
Maintain BUY with higher SOTP-based TP of S$9.96. DFIs
core business is worth US$9.34, which implies 25x FY17F PE.
Net debt is US$0.47 per share based on end-FY16 figures,
while Yonghui at current market price is worth US$1.09 per
share. Maintain BUY for 17% upside.
Interim Income Statement (US$m)

FY Dec 2H2015 1H2016 2H2016 % chg yoy % chg hoh
Revenue 5,544 5,562 5,639 1.7 1.4

Cost of Goods Sold (3,891) (3,914) (3,901) 0.3 (0.3)
Gross Profit 1,653 1,648 1,737 5.1 5.4
Other Oper. (Exp)/Inc (1,419) (1,451) (1,482) 4.4 2.1
Operating Profit 235 197 256 8.9 29.9
Other Non Opg (Exp)/Inc 0 0 0 nm nm
Associates & JV Inc 53 47 72 34.5 54.2
Net Interest (Exp)/Inc (8) (9) (13) (60.0) (42.2)
Exceptional Gain/(Loss) (4) 0 6 nm nm
Pre-tax Profit 276 234 321 16.3 36.9
Tax (45) (37) (48) 6.0 27.5
Minority Interest 2 2 (3) nm nm
Net Profit 232 199 270 16.1 35.3
Net profit bef Except. 237 199 264 11.4 32.2
EBITDA 288 243 327 13.7 34.5
Margins (%)
Gross Margins 29.8 29.6 30.8
Opg Profit Margins 4.2 3.5 4.5
Net Profit Margins 4.2 3.6 4.8
Source of all data: Company, DBS Bank
Page 55
Company Guide
Dairy Farm
Number of outlets
CRITICAL DATA POINTS TO WATCH
5220 5222 5244 5355
5408.9 5160
Earnings Drivers: 4636.2
Building a more efficient business model to drive sales and 3863.5
improve margins. DFIs management strategy is to build an 3090.8
eccentric business model, leverage on presence and scale, 2318.1
deliver greater convenience for customers, invest in modern, 1545.4
efficient supply chain and build people capability in Asia. These 772.7
targets span across its merchandising, operations, supply chain, 0.0
IT and quality assurance functions. Initiatives include 1) 2014A 2015A 2016A 2017F 2018F
implementing IT systems that will enhance processes and Sales per store blended
business analytics; 2) product range innovation to enhance
2.3 2.3
assortment and local relevance including ready to eat products 2.11 2.13 2.17 2.22
and corporate brands; 3) establishing fresh distribution centres 1.9

for more efficient backend logistics; 4) increase direct sourcing
1.4
to simplify supply chain; 5) improving convenience through e-
commerce in food, health & beauty, IKEA and pickup points; 6) 0.9
consolidation of sourcing to improve economies of scale. We

0.5
see these initiatives driving revenue and margins going forward.
0.0
2014A 2015A 2016A 2017F 2018F
Higher margins through fresh food and private labels.
Concentration towards more fresh food has started, especially Segment revenue 2016
in Indonesia, in a bid to deliver higher margins. There will be Home
furnishing
more cooperation with Yonghui for more fresh food to be stores
5%
brought into Singapore, the Philippines and Malaysia. The Health &
private label programme will support higher margins in Health & beauty stores
22%
Beauty and supermarket & hypermarket segments, and at the
convenience stores, more ready-to-eat meals. In Singapore, DFI
opened a 75,000 sqft fresh distribution centre in May 2016.
This will enhance sales mix of its fresh products and help to
bring in higher margins through more supplier rebates and
Food
higher bulk discounts. Fresh distribution centres have been 73%
planned for Malaysia and the Philippines in 2017.
Segment revenue 2016
Strengthening operations. We see DFI strengthening its South Asia
20%
operations regionally for the long term, with much of the focus
geared towards improving operating efficiencies. The areas
include e-commerce, IT infrastructure, supply chain, and food
and product safety. Growth will be supported by its private label
programme, and more distribution centres across its markets. It North Asia
East Asia
has already opened a fresh distribution centre in Singapore and 21%
59%
plans to open new distribution centres in Malaysia and

Philippines, slated for operations in 2017 These will help drive
higher margins going forward.
EBIT margin (%)
Synergies with Yonghui taking shape. We expect more 5.5
synergies with increased collaboration in the sharing of food
supplies. These include sharing suppliers and accessing 5.0
Yonghuis fresh food (e.g. fruits, etc.) supply chain for its stores
in Singapore, Malaysia, Hong Kong and the Philippines. Sale of 4.5
private label products within Yonghui stores (which do not have
health and beauty offerings), and the opening of Mannings 4.0
stores within Yonghui will be another area of cooperation.
3.5
3.0
2013A 2014A 2015A 2016A 2017F 2018F
Page 56
Company Guide
Dairy Farm
Leverage & Asset Turnover (x)

Balance Sheet: 2.7
0.70
Higher net debt. DFIs net debt increased to US$641m as at end 2.6
0.60
FY16. This is largely due to drawdown of US$500m bank loans
0.50 2.5
to refinance the initial US$800m of loans used to purchase
19.99% of Yonghui in 2015. DFI added another US$190m of 0.40
2.4
debt on its balance sheet in 2H16 to finance an additional 0.30

2.3
investment in Yonghui (announced in August 2015). DFIs 0.20
2.2
business generates strong operational cash flows of over 0.10
US$500m a year. We believe that DFI will be more than capable 0.00
2014A 2015A 2016A 2017F 2018F
2.1
of paring down debt in the next few years. Gross Debt to Equity (LHS) Asset Turnover (RHS)
Capital Expenditure
Share Price Drivers: US$m
Earnings turnaround. We believe share price upside will be 300.0
driven by earnings recovery. Our view on the stock is based on 250.0
DFIs ability turn in a more efficient operations going forward 200.0
that will drive earnings growth. Key indicators are higher 150.0
contribution by Yonghui and margin expansion of core business 100.0

through better cost management and margin enhancement 50.0
initiatives (ie distribution centres). IT and backend enhancement
0.0
initiatives should also support a better cost structure in terms of 2014A 2015A 2016A 2017F 2018F
centralised procurement, logistics and other operations etc. Capital Expenditure (-)
ROE (%)
Cooperation with Yonghui may drive long-term share price. We
35.0%
are positive on DFIs Yonghui investment because the
30.0%
partnership with Yonghui provides a good platform to scale up
DFIs business in China. Longer-term opportunities include 25.0%
exposure to Chinas modern grocery retail consumption, more 20.0%
Mannings stores and better supply of products to each other. 15.0%
10.0%
Key Risks: 5.0%
Profitability susceptible to rental and labour costs. As a retailer, 0.0%

2014A 2015A 2016A 2017F 2018F
labour and rental costs are key operating cost components.
Significant changes in these components will affect earnings Forward PE Band (x)
growth. Higher rental and labour costs were seen in Hong (x)
Kong, Singapore and Indonesia in FY15-16, which resulted in 38.0
+2sd:36.3x
lower margins. 33.0
+1sd:30.8x
Competitive pressure. Grocery retail customers can be price 28.0

Avg:25.4x
sensitive and may switch to retailers which offer more 23.0
promotions. This can be a risk to market share, sales and 1sd:19.9x

18.0
earnings growth. In times of weaker consumer sentiment,
2sd:14.5x
customers may trade down from high-end supermarkets to the 13.0
mass-market segment. DFI has plans to strengthen its
marketing to the mass market segment and target specifically PB Band (x)
local consumers. (x)
15.5
13.5 +2sd:13.57x
COMPANY BACKGROUND
Dairy Farm is a Pan Asian retailer, operating over 6,400 11.5
+1sd:11.17x
supermarkets, hypermarkets, health and beauty stores, 9.5
convenience stores, home furnishing stores and restaurants Avg:8.77x
7.5
under well-known brand names in Hong Kong, Taiwan, China, 1sd:6.37x
Macau, Singapore, India, the Philippines, Cambodia, Brunei, 5.5
Malaysia, Indonesia and Vietnam. 3.5

2sd:3.97x
Page 57
Company Guide
Dairy Farm
Key Assumptions
FY Dec 2014A 2015A 2016A 2017F 2018F
Number of outlets 5,220 5,222 5,160 5,244 5,355
Sales per store blended 2.11 2.13 2.17 2.22 2.30
Segmental Breakdown
FY Dec 2014A 2015A 2016A 2017F 2018F
Revenues (US$m)
Food 8,109 8,197 8,168 8,350 8,708
Health & beauty stores 2,402 2,373 2,436 2,622 2,835
Home furnishing stores 497 568 597 671 754
Support office/others N/A N/A N/A N/A N/A
Total 11,008 11,137 11,201 11,642 12,297
Operating profit (US$m)
Food 299 236 267 279 292
Health & beauty stores 219 186 176 184 198
Home furnishing stores 50.7 63.6 70.6 79.3 89.1
Support office/others (43.8) (49.6) (60.7) (63.1) (66.6)
Total 524 435 453 479 512
Operating profit Margins
Food 3.7 2.9 3.3 3.3 3.3
Health & beauty stores 9.1 7.8 7.2 7.0 7.0
Home furnishing stores 10.2 11.2 11.8 11.8 11.8
Support office/others N/A N/A N/A N/A N/A
Total 4.8 3.9 4.0 4.1 4.2
Income Statement (US$m)

FY Dec 2014A 2015A 2016A 2017F 2018F
Revenue 11,008 11,137 11,201 11,642 12,297
Cost of Goods Sold (7,717) (7,852) (7,815) (8,173) (8,608)
Gross Profit 3,291 3,285 3,386 3,469 3,689
Other Opng (Exp)/Inc (2,767) (2,850) (2,933) (2,990) (3,176)
Operating Profit 524 435 453 479 512
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 68.9 85.0 118 125 144
Net Interest (Exp)/Inc (1.9) (13.6) (21.8) (24.7) (22.8)
Exceptional Gain/(Loss) 9.70 (4.2) 6.20 0.0 0.0
Pre-tax Profit 601 503 555 580 634
Tax (93.3) (84.5) (85.1) (99.3) (109)
Minority Interest 1.40 5.80 (1.1) 5.00 (1.3)
Preference Dividend 0.0 0.0 0.0 0.0 0.0
Net Profit 509 424 469 486 524
Net Profit before Except. 499 428 463 486 524
EBITDA 796 732 784 831 895
Growth
Revenue Gth (%) 6.3 1.2 0.6 3.9 5.6
EBITDA Gth (%) 1.1 (8.0) 7.0 6.0 7.7
Opg Profit Gth (%) 0.0 (17.0) 4.0 5.9 6.9
Net Profit Gth (Pre-ex) (%) 5.3 (14.3) 8.1 4.9 7.9
Margins & Ratio
Gross Margins (%) 29.9 29.5 30.2 29.8 30.0
Opg Profit Margin (%) 4.8 3.9 4.0 4.1 4.2
Net Profit Margin (%) 4.6 3.8 4.2 4.2 4.3
ROAE (%) 37.6 30.2 32.6 30.2 28.9
ROA (%) 12.3 9.3 9.4 9.0 9.1
ROCE (%) 25.8 17.1 14.9 14.1 14.0
Div Payout Ratio (%) 61.1 63.8 60.5 64.1 59.3
Net Interest Cover (x) 275.9 32.0 20.8 19.4 22.5
Page 58
Company Guide
Dairy Farm
Quarterly / Interim Income Statement (US$m)

FY Dec 2H2014 1H2015 2H2015 1H2016 2H2016
Revenue 5,709 5,593 5,544 5,562 5,639

Gross Profit 1,714 1,632 1,653 1,648 1,737
Other Oper. (Exp)/Inc (1,435) (1,431) (1,419) (1,451) (1,482)
Operating Profit 279 201 235 197 256
Associates & JV Inc 47.3 31.7 53.3 46.5 71.7
Exceptional Gain/(Loss) (0.7) 0.0 (4.2) 0.0 6.20
Pre-tax Profit 322 227 276 234 321
Tax (49.4) (39.5) (45.0) (37.4) (47.7)
Minority Interest 2.60 4.30 1.50 2.30 (3.4)
Net Profit 275 192 232 199 270
Net profit bef Except. 276 192 237 199 264
EBITDA 326 232 288 243 327
Growth
Revenue Gth (%) 7.7 (2.0) (0.9) 0.3 1.4
EBITDA Gth (%) 22.3 (28.8) 24.0 (15.5) 34.5
Opg Profit Gth (%) 13.7 (28.1) 17.0 (16.1) 29.9
Net Profit Gth (%) 17.8 (30.5) 21.3 (14.2) 35.3
Margins
Gross Margins (%) 30.0 29.2 29.8 29.6 30.8
Opg Profit Margins (%) 4.9 3.6 4.2 3.5 4.5
Net Profit Margins (%) 4.8 3.4 4.2 3.6 4.8
Balance Sheet (US$m)

FY Dec 2014A 2015A 2016A 2017F 2018F
Net Fixed Assets 1,291 1,141 1,100 1,089 1,074

Invts in Associates & JVs 388 1,292 1,462 1,587 1,731
Other LT Assets 707 948 951 934 917
Cash & ST Invts 662 259 324 699 709
Inventory 1,011 937 983 1,030 1,085
Debtors 252 234 291 255 320
Other Current Assets 5.30 11.2 19.4 19.4 19.4
Total Assets 4,316 4,821 5,129 5,613 5,856
ST Debt 93.4 730 370 370 370

Creditor 2,413 2,355 2,328 2,575 2,594
Other Current Liab 59.2 66.6 73.4 114 123
LT Debt 93.8 10.6 595 595 595
Other LT Liabilities 135 204 184 184 184
Shareholders Equity 1,429 1,376 1,505 1,707 1,920
Minority Interests 93.8 79.4 74.1 69.1 70.4
Total Cap. & Liab. 4,316 4,821 5,129 5,613 5,856
Non-Cash Wkg. Capital (1,204) (1,239) (1,108) (1,385) (1,293)

Net Cash/(Debt) 475 (482) (641) (266) (256)
Debtors Turn (avg days) 7.7 8.0 8.5 8.6 8.5
Creditors Turn (avg days) 114.7 113.9 112.4 112.6 112.7
Inventory Turn (avg days) 48.3 46.5 46.1 46.2 46.1
Asset Turnover (x) 2.7 2.4 2.3 2.2 2.1
Current Ratio (x) 0.8 0.5 0.6 0.7 0.7
Quick Ratio (x) 0.4 0.2 0.2 0.3 0.3
Net Debt/Equity (X) CASH 0.3 0.4 0.1 0.1
Net Debt/Equity ex MI (X) CASH 0.4 0.4 0.2 0.1
Capex to Debt (%) 144.1 34.9 20.6 20.6 21.4
Z-Score (X) 5.7 4.7 4.5 4.4 4.4
Page 59
Company Guide
Dairy Farm
Cash Flow Statement (US$m)

FY Dec 2014A 2015A 2016A 2017F 2018F
Pre-Tax Profit 601 503 555 580 634

Dep. & Amort. 203 212 213 226 238
Tax Paid (93.8) (90.2) (95.3) (58.6) (99.3)
Assoc. & JV Inc/(loss) (68.9) (85.0) (118) (125) (144)
Chg in Wkg.Cap. (17.4) 73.0 (134) 236 (101)
Other Operating CF 52.2 87.5 122 0.0 0.0
Net Operating CF 676 700 543 858 528
Capital Exp.(net) (270) (259) (199) (199) (207)
Other Invts.(net) 0.0 0.0 0.0 0.0 0.0
Invts in Assoc. & JV (91.4) (918) (197) 0.0 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF (71.3) (189) (32.1) 0.0 0.0
Net Investing CF (433) (1,365) (428) (199) (207)
Div Paid (311) (311) (270) (284) (311)
Chg in Gross Debt 20.5 573 238 0.0 0.0
Capital Issues 0.0 0.0 0.0 0.0 0.0
Other Financing CF (2.5) 15.7 (9.7) 0.0 0.0
Net Financing CF (293) 278 (42.5) (284) (311)
Currency Adjustments (5.0) (12.1) (6.5) 0.0 0.0
Chg in Cash (54.6) (400) 65.9 375 10.1
Opg CFPS (US cts.) 51.3 46.4 50.0 46.0 46.5
Free CFPS (US cts.) 30.0 32.6 25.4 48.7 23.7
Target Price & Ratings History
US$
12- mt h
8.55 Dat e of Closing
S.No. T arget Rat ing
Report Pric e
Pric e
8.05 1: 04 Mar 16 6.09 7.03 BUY
2: 10 Mar 16 5.90 7.03 BUY
7.55 3: 01 Aug 16 6.60 7.18 BUY
7.05
6.55
3
6.05 2
1
5.55
Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank

Analyst: Alfie YEO
Andy SIM CFA
Page 60
Singapore Company Guide
Sheng Siong Group
Version 9 | Bloomberg: SSG SP | Reuters: SHEN.SI Refer to important disclosures at the end of this report
DBS Group Research . Equity 20 Jun 2017
BUY Margin expansion not over yet

Last Traded Price (19 Jun 2017): S$0.975 (STI : 3,230.42)
Price Target 12-mth: S$1.20 (23% upside) (Prev S$1.20) Maintain BUY TP S$1.20, more positive on margins. We remain
positive on Sheng Siong on the back of better visibility for higher
Analyst margins. We believe expansion of its distribution centre will
Alfie YEO +65 6682 3717 alfieyeo@dbs.com
Andy SIM CFA +65 6682 3718 andysim@dbs.com grow and sustain gross margins going forward. Margins remain
on the uptrend supported by the increase in direct sourcing,
bulk handling, and fresh mix, contributing to earnings growth.
Whats New Stock is trading attractively at 20.4x FY18F PE compared to
We expect margin improvement to continue on historical average of 23x since listing. Yield remains attractive at
upcoming warehouse expansion 4.4%.
Expanded warehouse will realise higher margins

Where we differ. The market is concerned with competition for
from volumes, SKUs and fresh food
shop space, closure of key stores (Verge and Woodlands), online
Store network expected to grow on more supply threat, and threat of gross margins being unsustainable.
of HDB shops available for bidding However, we have found that the critical factor driving Sheng
Maintain BUY; S$1.20 TP Siongs stock price is margins. We believe margins should
continue expanding as its distribution centre is being expanded,
driving earnings growth.
Price Relative
Potential catalyst. We see added warehousing capacity
supporting its margins over the next few years from its
warehouse expansion. Higher volume rebates, higher fresh mix,
economies of scale, more stock keeping units (SKUs), and better
leverage to support more stores in the future will likely improve
margins from current levels. With the HDB opening up new
estates and putting up more commercial shop spaces for
supermarkets, we see more scope for store network expansion
FY Dec (S$ m) 2016A 2017F 2018F 2019F
Revenue 797 807 828 878
going forward, contributing to growth.
EBITDA 80.0 87.6 92.2 101
Pre-tax Profit 76.2 82.7 86.9 92.2 Valuation:
Net Profit 62.7 68.6 72.0 76.5
Our target price for Sheng Siong is S$1.20 based on 25x FY18F
Net Pft (Pre Ex.) 62.7 68.6 72.0 76.5
Net Pft Gth (Pre-ex) (%) 10.4 9.4 4.9 6.2 PE. The valuation is pegged at +1SD of its historical mean since
EPS (S cts) 4.17 4.56 4.79 5.08 listing and below regional peers' average of 30x PE.
EPS Pre Ex. (S cts) 4.17 4.56 4.79 5.08
EPS Gth Pre Ex (%) 10 9 5 6
Diluted EPS (S cts) 4.17 4.56 4.79 5.08 Key Risks to Our View:
Net DPS (S cts) 3.75 4.10 4.31 4.57 Store openings, price competition. Revenue growth will be led
BV Per Share (S cts) 16.8 17.2 17.7 18.2 by new store openings. Excessive discounts and promotions in
PE (X) 23.4 21.4 20.4 19.2
the market by competitors will ultimately result in lower
PE Pre Ex. (X) 23.4 21.4 20.4 19.2
P/Cash Flow (X) 18.8 19.9 13.6 15.0 margins.
EV/EBITDA (X) 17.6 16.1 15.1 13.6 At A Glance
Net Div Yield (%) 3.8 4.2 4.4 4.7
Issued Capital (m shrs) 1,504
P/Book Value (X) 5.8 5.7 5.5 5.4
Net Debt/Equity (X) CASH CASH CASH CASH Mkt. Cap (S$m/US$m) 1,466 / 1,055
ROAE (%) 25.3 26.9 27.4 28.3 Major Shareholders (%)
Earnings Rev (%): 0 0 - SS Holdings 29.85
Consensus EPS (S cts): 4.50 4.60 4.80 Lim Family 33.99
Other Broker Recs: B: 7 S: 1 H: 2 Free Float (%) 36.16
Source of all data on this page: Company, DBS Bank, 3m Avg. Daily Val (US$m) 1.5
Bloomberg Finance L.P ICB Industry: Consumer Services / Food & Drug Retailers

ed: TH / sa:SM, PY
Page 61
Company Guide
Sheng Siong Group
WHATS NEW
More margin expansion on the cards
More catalyst in warehouse expansion Better margins from higher volume discount and higher-
margin SKUs. The existing warehouse space is running at
Background of the KTM land. When Sheng Siong close to full capacity that supports 43 stores currently.
constructed its present distribution centre at Mandai in Following the expansion, Sheng Siongs warehouse space
2009, a part of the land next to which the building sits on will increase by another 10%. Higher volume orders from
belonged to the current rail corridor (former KTM railway suppliers and increase in higher-margin SKUs will support
land). The current 2.32 hectares of land which JTC awarded margin expansion. These will come from better discounts
to Sheng Siong as a result, is constructed in a U shape from bulk orders, essentially creating better economies of
instead of a regular rectangle. This is due to the nature of scale.
land ownership when the land was awarded. Last year, the
JTC resolved the rights to the former KTM railway land and Capacity to support more stores in the future. Higher
Sheng Siong can now utilise the former KTM land. This throughput in the future will support a larger store network
means that the current U-shaped layout can be flushed into as well. HDB is constantly putting out commercial shop
a regular rectangular-shaped building, essentially expanding spaces for supermarkets in various areas. We believe Sheng
the distribution centres capacity. Siong will eventually increase its store count from the 43
stores currently. A higher warehousing capacity, throughput
Sheng Siong to expand Mandai Link warehouse by another and higher store count in the future would ultimately help
10%. The current distribution centres capacity is 500,000 to defray fixed operating costs and support margins.
sqft. Flushing the building into a regular rectangle from a U-
shaped layout will add another 50,000 sqft to the
warehouse capacity. With all systems clear and heavy Consensus is mixed on Sheng Siong, but we are positive on
equipment already on site, construction is due to start in margin expansion
June 2017 and is expected to complete in 2018. Sheng
Siong will incur S$19m in construction cost with the bulk What is the market concerned with? Consensus is generally
amounting to c.S$13m to be incurred in 2018, all internally concerned about competition and Sheng Siongs ability to
funded. The warehouse will have storage capacity for both open new stores. Store opening has been a function of
chilled and regular storage products. HDBs available supply for shop space and the competition
in bidding for them. Competition for shop space has been
keen over the past few months, with smaller players winning
What does this mean for Sheng Siong? shop space at aggressive bids. This has fuelled concerns on
Sheng Siongs inability to grow store network and open new
Beneficial to margins and better economies of scale. A stores. Besides, there also concerns that two of its stores are
bigger distribution centre will increase warehouse due to close in Woodlands (41,500 sqft) in August 2017 and
throughput and support volumes for new stores in the the Verge (45,000 sqft) in June 2017.
future. Besides, margin expansion will be supported by
higher fresh food mix, volume discounts from suppliers and Our critical factor for the stock is margin, not top line. We
scope for higher-margin SKUs (stock keeping units). More believe consensus has placed too much emphasis on Sheng
cold storage capacity built into the expanded area will Siongs top-line growth. This is where we differ and offer
support higher mix of fresh food. We do not see any our differentiated view from the market in our analysis
significant increase in manpower and delivery costs for now process. We have found that the correlation for Sheng
as its current human resources have scope to increase Siongs stock price to margin is strong (very close to 1) at a
productivity further. reading of 0.9. Hence, earnings growth and margins are
driving Sheng Siongs stock price rather than top-line
Higher margins through fresh mix. Sheng Siong is increasing growth. Singapores grocery retail growth is typically
its proportion of fresh offering in stores. Its fresh food mix is unexciting at 0-5% for top line, yet the stock price has risen
currently higher than that of key competitors Dairy Farm and in tandem with margin expansion and earnings growth. We
NTUC Fairprice. The higher-margin nature of fresh food over are positive on continued margin expansion backed by the
non-fresh grocery items will lead to higher gross margins. higher warehouse capacity we have aforementioned.
Page 62
Company Guide
Sheng Siong Group
Cost management is a critical factor in preserving margins supermarkets located across Singapore, making it
which Sheng Siong is always mindful of. Sheng Siong has convenient to pick up groceries. HDB has put up properties
>40 stores islandwide with more than 400,000 sqft of earmarked for supermarket over the years and as such,
selling space. In our opinion, being the third largest supermarkets are now conveniently located across
supermarket player in Singapore with a Mandai distribution Singapore. Online businesses although gaining traction,
centre, Sheng Siong has both critical mass and economies of remain in an unprofitable state. Pureplay online grocery
scale. We believe focus has been on cost management retailer Redmarts business remains in core operating losses
rather than driving sales. If Sheng Siongs focus was to drive and negative free cash flow. It has less than S$100m of
sales, it would be bidding aggressively against the smaller revenue in a S$6bn Singapore grocery retail market after
players regardless of price. However, it emerged as the four years of operation. HDB will release six supermarket
winning bidder in only one out of six supermarket bids this and two minimart properties in the next six months, not
year, at a reasonable S$15 psf, lower than c.S$20 psf bids in forgetting future supermarket properties in new estates such
4Q16. as Biddadari. Scope for growing store network abound over
the long term. We believe this will give online a run for its
Market is concerned that top line is slowing, but we believe money as it remains convenient for consumers to pick up
it is short term and see store network increasing eventually. groceries. About 80% of people living in Singapore live in
We refute the argument that outlook is unexciting because HDB estates (which have planned amenities including
Sheng Siong has not been winning new shop space. Instead, grocery shops) and do not live off the beaten path to
we believe the market should focus on the rental levels that really warrant grocery delivery in our view.
Sheng Siong is securing new stores, rather than short-term
headwinds of two store closures and not winning new
stores. Sheng Siong also recently won one 11,000-sqft new Financial impact
store in Woodlands St 12. Meanwhile, the Tampines Central
store expansion will add 15,000 sqft to its store network Internally funded. Sheng Siong will internally fund the
space. These will mitigate the impact of store closures. Also, warehouse expansion to the tune to S$19m comprising
we believe that footfall for the Verge and Woodlands has construction and fit out. As of 1Q17, Sheng Siong had
been tapering and well accounted for in recent quarters S$68.3m cash on its balance sheet with no debt. Sheng
results due to news of their imminent closure. Negative Siong generates c.S$70-80m in operating cashflow each
short-term impact should therefore be minimal. With HDB year, more than sufficient to fund the expansion. There is no
continuing to put up shops earmarked for supermarkets for further cashflow burden on past property purchases as
tender in existing and new estates, there are ample previous cashflow strain on the purchases of Tampines
opportunities to secure more stores going forward. property (2014, S$65m), Bedok property (2016, S$55m) and
Junction 9 (2013, S$55m) have all already been expensed.
Growing through operating efficiencies. Store count is not
the only factor that drives growth. Higher store efficiencies
can supplement growth as well along with greater focus on Valuation
cost. These include running more promotions, quicker
checkout process, store layout, new SKUs, higher-margin Maintain BUY, TP S$1.20. We maintain our BUY
products to generate greater stock turnover, sales volumes recommendation on Sheng Siong. We like Sheng Siong for
and better profitability. its steady earnings growth, net cash, growing margins and
strong dividend yield. Our TP of S$1.20 is derived from 25x
Online is not a real threat for now. We do not see online FY18F PE.
business as a significant threat for now. There are
Page 63
Company Guide
Sheng Siong Group
Sheng Siongs U-shaped layout and location of warehouse expansion
Not Sheng Siongs building
Rail corridor
Ex-KTM
railway
land
Source: Google map, DBS Bank
Trades below peers average of 30x PE

Cap P/BV P/Sales ROE M argin M argin Y ield
Company Rat ing Count ry (S$m) Px L ast PE (A c t ) PE (Y r 1) PE(Y r 2) (x ) (x ) (%) (%) (%) (%)
Sheng Siong BUY SGX 1,489 0.98 26.2x 23.7x 21.7x 5.9x 1.9x 25% 8.2% 7.9% 3.8%
Sout h East A sia Peers

Dairy F arm Intl BUY SGX 15,294 8.02 25.8x 23.9x 22.8x 7.3x 1.0x 33% 4.0% 4.2% 2.6%
CP ALL BUY SET 22,598 61.75 40.5x 33.4x 27.6x 10.1x 1.3x 36% 6.5% 3.8% 1.5%
Big C Supercntr F ULLY V ALUSET 7,461 222.00 26.6x 23.1x 20.3x 3.5x 1.5x 16% 8.2% 6.3% 1.3%
Siam Makro NOT RATED SET 6,986 35.75 29.7x 27.4x 25.5x 9.9x 1.0x 45% 4.1% 3.1% 2.4%
Puregold HOLD PSE 3,448 45 25.0x 22.7x 20.8x 2.9x 1.1x 14% 7.2% 4.9% 0.7%
Matahari Putra F ULLY V ALUIDX 428 760 22.5x 53.3x 21.0x 1.6x 0.3x 3% 1.3% 0.5% 0.7%
Sumber Alfaria NOT RATED IDX 2,439 565 38.9x 29.3x 25.7x 4.5x 0.4x 14% 2.3% 1.1% 0.8%
PSC NOT RATED PSE 2,033 160 63.7x NaN NaN 14.1x 2.5x 37% 6.1% 4.1% 0.3%
Hero Supermarket NOT RATED IDX 518 1,200 27.7x 26.1x n/a 0.9x 0.4x 3% 1.6% 1.1% na
Robinsons Retail BUY PSE 3,375 88 28.1x 25.2x 21.8x 2.6x 1.2x 11% 5.2% 4.6% 0.8%
7 Elev en NOT RATED KLSE 546 1.37 35.7x 31.2x 28.0x n/a 0.8x 148% 3.5% 2.5% 1.7%
Bison Cons NOT RATED KLSE 234 2.33 36.6x 29.3x 23.4x 4.4x 2.5x 12% 8.9% 6.9% 0.6%
Modern Internasi NOT RATED IDX 24 50 nm NaN nm 0.2x 0.3x -3% 6.7% -4.8% na
Midi Utama ID NOT RATED IDX 264 880 12.6x NaN NaN n/a n/a 31% 5.0% 2.3% 2.3%
Regional av erage 29.5x 29.5x 20.3x 5.2x 1.1x 29% 5.0% 2.9% 1.3%
Ex - Indonesia av erage 35.3x 27.0x 24.2x 8.0x 1.3x 47% 5.7% 4.1% 1.5%
Closing as of 19 Jun 2017
Source: DBS Bank
Page 64
Company Guide
Sheng Siong Group
There are 6 HDB supermarkets up for bidding in the next 6 months

S/N Estate Precinct Name Block Street Name Commercial Units
Minimart Shop Supermarket Eating house
1 BUKIT BATOK Skyline @ Bt Batok 296A Bukit Batok Street 22 1 1 - -
2 JURONG WEST - 990 Jurong West St 93 - - - 1
3 PUNGGOL EAST Waterway Sundew 660A Edgedale Plains - 5 1 1
4 PUNGGOL WEST Matilda Edge 224A Sumang Lane - 5 - -
5 QUEENSTOWN Ghim Moh Edge 29A Ghim Moh Link - 4 1 -
6 SEMBAWANG EastLace @ Canberra 115 Canberra Walk 1 4 - -
7 SENGKANG Anchorvale Parkview 338 Anchorvale Crescent - 9 1 1
8 SENGKANG Fernvale Riverwalk 417 Fernvale Link - 9 1 1
9 WOODLANDS Admiralty Flora 691 Woodlands Drive 73 - 4 1 1
10 WOODLANDS Woodlands Glen 573 Woodlands Drive 16 - 8 1 1
Total 2 49 6 6
SSG won one new 11,000-sqft store in Woodlands St 12 at <S$15psf in May 2017
S/N Bidder Rental/mth bid Rate
1 SHENG SIONG SUPERMARKET PTE LTD $161,000 $14.65
2 U Stars Supermarket Pte $159,000 $14.47
3 Heng Wei Ming $152,700 $13.89
4 SHENG SIONG SUPERMARKET PTE LTD $145,200 $13.21
5 Lukas Lee $138,000 $12.56
6 NTUC Fairprice Co-operative Limited $132,000 $12.01
7 To be confirmed $131,200 $11.94
8 COLD STORAGE SINGAPORE (1983) $99,000 $9.01
9 ANG MO SUPERMARKET PTE LTD $83,100 $7.56
10 Hao Mart Pte Ltd $74,200 $6.75
Bid prices have corrected from S$21psf last year to S$13-15psf this year
Date Address Winning bidder Floor space (Sqft) $/sqft Rental/mth
Dec 2016 Tampines Avenue 8 Yes Supermarket Pte Ltd 3,100 21 S$64,000
Dec 2016 Compassvale Drive Raymond Chan 3,400 17 S$58,350
19 Jan 2017 Blk 507 Yishun Avenue 4 U Stars Supermarket Pte Ltd 3,750 18 $67,200
2 Mar 2017 Blk 410A Sin Ming Ave NTUC Fairprice Co-operative Limited 5,800 13 $75,500
31 Mar 2017 Blk 878C Tampines Avenue 8 U Stars Supermarket Pte Ltd 3,100 15 $46,000
20 Apr 2017 Blk 116 Jalan Tenteram Cold Storage Singapore (1983) 5,400 14 $77,000
12 May 2017 Blk 4 Woodlands Street 12 Sheng Siong Supermarket Pte Ltd 11,000 15 $161,000
Page 65
Company Guide
Sheng Siong Group
Market consensus vs DBSs view

Markets concerns Our differentiated view
1 Cautious on outlook as competition Sheng Siong did not open any new stores for two years from FY13 to FY14, but core earnings
for new stores is keen and Sheng grew at a CAGR of 23% due to better operating efficiencies including margin expansion and
Siong has been outbid by competitors higher sales psf. We find more operating efficiencies to be realised from upcoming warehouse
for new HDB properties expansion where economies of scale have scope to improve further. Our critical factor analysis
on Sheng Siong has never been on the top-line growth, but margin expansion and earnings
growth. It is well noted in the market that grocery retail sales growth is within single-digit levels
and SSSG is typically 0-5%. Instead, the correlation between share price appreciation and gross
margin expansion is high at 0.9. Players can bid for stores aggressively. But if the aggressive
rental bid results in low store ROE, it will ultimately disappoint shareholders. Sheng Siong has a
track record of not overpaying rental to secure new stores. Earnings and margins remain key,
less on top-line growth.
2 Key big stores such as the Verge and Sheng Siong recently won one 11,000-sqft new store in Woodlands St 12. The Tampines
Woodlands are closing Central store expansion will add 15,000 sqft to its store network space. These will mitigate the
impact of store closures. For store closures, we believe that footfall for the Verge and
Woodlands has been tapering and well accounted for in recent quarters' results due to news of
their imminent closure. Negative short-term impact should therefore be minimal. With HDB
putting up shops earmarked for supermarkets for tenders in current and new estates, there are
opportunities to secure more stores. The question should be on the rental levels at which new
stores are secured, not short-term headwinds two store closures.
3 Online is a threat Online is not a threat for now. About 80% of people living in Singapore live in HDB estates and
do not live off the beaten path to warrant grocery delivery, while supermarkets are
conveniently located for shoppers to pick up groceries. Redmarts is penetrating the market but
remains in core operating losses and negative free cash flow. HDB will release more
supermarkets in the next six months and more when new estates are built. Scope for growing
store network abound over the long term. We believe this will give online a run for its money as
it provides convenience for consumers to pick up groceries.
4 Gross margin expansion may not Warehouse expansion will have more scope for operating efficiencies to improve. We see
sustain increased catering to new SKUs and throughput, resulting in higher volume discounts from
suppliers. Sheng Siong is still pushing for higher fresh food mix which will improve gross
margins, especially in stores where fresh food mix have room to improve. The expanded
warehouse will be completed by FY18F, which secures margin expansion trend beyond that.
Source: DBS Bank
Page 66
Company Guide
Sheng Siong Group
Rev per sqft

Critical Factors
Store expansion. Sheng Siong currently operates 43 stores
(including Loyang Point which is under renovation). Compared
to the other local operators, it has scope to expand its store
network, particularly in areas such as Serangoon, Hougang and
Seng Kang, where it has a low presence. Management targets
to ultimately operate 50 stores islandwide. In the past six years,
0-8 stores were opened annually, largely a function of supply of
HDB shop space available for tender and Sheng Siongs ability
Operation Area (sqft)
to win the tenders. Sheng Siong mainly operates in HDB estates.
Gross margin expansion through better sales mix. The gross

margin for fresh products is estimated to be >30%, and close to
20% for non-fresh grocery items. Sheng Siongs product mix
stands at approximately 40% fresh vs 60% non-fresh. We see
headroom for sales mix to improve to 50% for each as it skews
its store offerings more towards fresh products.
Mandai Distribution Centre to expand. The Mandai Distribution

Centre allows Sheng Siong to perform direct sourcing and bulk
Number of stores
handling. This effectively drives down input costs, resulting in
cost savings and better margins. We estimate that the facility is
currently running at only 90% of capacity and a new
warehouse adjacent to the current one is expected to start
construction in FY17F. It will be able to secure more suppliers
and products to trade through the distribution centre to
effectively enjoy more bulk handling and higher supplier
rebates. Margins are expected to trend up as utilisation
increases towards full capacity.
Margin expansion through direct sourcing. Sheng Siong is SSSG (%)

increasingly sourcing directly from suppliers such as farms 6.0%
instead of from middlemen. The company has the resources to 5.0%
place large orders, which is welcomed by producers. 4.0% Weak demand
conditions,
Affected by store
3.0% SG50 renov ations
Generating more same-store-sales growth (SSSG) to increase promotion and
2.0% discounting
revenue. Sheng Siong has been able to maintain positive SSSG
1.0%
since 4Q13 (excluding 4Q15, 1Q16) through longer operating
0.0%
hours and renovation of older stores, offering the correct
-1.0% 3Q & 4Q would be
products and effective marketing. SSSG from 3Q16 to 1Q17 has negativ e 1.2% &
2.7% if include
-2.0%
been affected partly by the renovation of the Loyang store. The Loy ang store
renov ation
-3.0%
SSSG would have been positive had Loyang store performed 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17
similar to the previous year and was not shut down for
renovation. Maintaining positive SSSG will support earnings Gross Margins (%)
growth. 27.0
26.5
26.0
Kunming store in China to open in 2017. Its first store in
25.5
Kunming (40,000 sqft) is expected to commence operations in
25.0
2017. Downside for the JV is limited to US$6m paid-up capital 24.5
which is sufficient to open 2-3 new stores. 24.0
23.5
23.0
22.5
22.0
1Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q161Q17
Page 67
Company Guide
Sheng Siong Group
Appendix 1: A look at the company's listed history what

drives its share price?
Correlation of stock price to gross margin improvement is strong at 0.9
S$ Gross margins (RHS) Share price (LHS) %

1.20 30
Gross margins
expanded from
1.00 20.8% to 23.2% 28
0.80 25
0.60 Gross margins 23

at all time high
of c.26%
0.40 Gross margins 20

expanded from
23.8% to 25.2%
0.20 18
Feb-12
Feb-13
Feb-14
Feb-15
Feb-16
Feb-17
Aug-11
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
Source: DBS Bank
Page 68
Company Guide
Sheng Siong Group

Balance Sheet:
Net cash of over S$68m or c.4 Scts per share. The excess cash
allows for strategic store acquisitions if suitable real estate arises
for it to expand its store presence in the future. The business
generates positive working capital. Inventory is purchased on
credit, and quickly turned into cash. Over the past seven years,
the business has generated between S$20-75m of operating
cash flow each year. Dividend payout is attractive at 90%. We
expect this to be maintained as long as there is no significant
requirement for cash funding.
Capital Expenditure
Share Price Drivers:
Strong earnings growth performance. Sheng Siongs financial

performance has consistently met our expectations, delivering
earnings growth (5-year CAGR of 18.1% since FY11) through a
combination of margin expansion, store growth and SSSG. We
believe continued delivery of consistent performance and profit
growth will support a strong share price.
China to be a wildcard. We believe Sheng Siongs JV in China is ROE (%)

a wildcard. If operations prove to be successful, in time to
come, China can provide an alternate source of growth. There is
scope for the number of stores to increase should Sheng Siongs
business model work. Downside remains limited to US$6m for
now should the JV fail.
Key Risks:
Revenue growth limited by store openings. Store expansion in

Singapore is largely dependent on the supply of new
supermarket retail space released by HDB and its ability to Forward PE Band (x)
secure the tenders.
Excessive discounts and promotions may erode margins.

Heavier discounts and promotions vis-a-vis competitors would
drive sales revenue, but this could be gained at the expense of
margins.
Company Background
Sheng Siong is the third largest supermarket operator in

Singapore, behind NTUC Fairprice and Dairy Farm PB Band (x)
International.
Page 69
Company Guide
Sheng Siong Group
Key Assumptions
FY Dec 2015A 2016A 2017F 2018F 2019F
Rev per sqft 1,892 1,848 1,850 1,816 1,808
Operation Area (sqft) 431,000 450,000 455,664 485,664 515,664
Number of stores 39.0 42.0 45.0 48.0 51.0
Segmental Breakdown
FY Dec 2015A 2016A 2017F 2018F 2019F
Revenues (S$m)
Singapore 764 797 807 828 878
Total 764 797 807 828 878

Operating profit (S$m)
Singapore 57.2 65.1 72.5 76.7 84.3
Total 57.2 65.1 72.5 76.7 84.3

Singapore 7.5 8.2 9.0 9.3 9.6
Total 7.5 8.2 9.0 9.3 9.6
Income Statement (S$m)

FY Dec 2015A 2016A 2017F 2018F 2019F
Revenue 764 797 807 828 878
Cost of Goods Sold (576) (592) (597) (610) (645)
Gross Profit 189 205 210 218 233
Other Opng (Exp)/Inc (132) (140) (137) (141) (148)
Operating Profit 57.2 65.1 72.5 76.7 84.3
Net Interest (Exp)/Inc 1.22 0.57 0.64 0.58 0.78
Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0
Pre-tax Profit 67.7 76.2 82.7 86.9 92.2
Tax (10.9) (13.5) (14.1) (14.8) (15.7)
Minority Interest 0.0 0.0 0.0 (0.1) (0.1)
Net Profit 56.8 62.7 68.6 72.0 76.5
Net Profit before Except. 56.8 62.7 68.6 72.0 76.5
EBITDA 70.6 80.0 87.6 92.2 101
Growth
Revenue Gth (%) 5.3 4.2 1.3 2.5 6.1
EBITDA Gth (%) 12.1 13.3 9.5 5.2 9.3
Opg Profit Gth (%) 9.7 13.7 11.3 5.8 9.9
Net Profit Gth (Pre-ex) (%) 20.8 10.4 9.4 4.9 6.2
Margins & Ratio
Gross Margins (%) 24.7 25.7 26.0 26.3 26.5
ROAE (%) 23.6 25.3 26.9 27.4 28.3
ROA (%) 15.9 16.6 17.7 18.0 18.1
ROCE (%) 19.8 21.3 23.1 23.8 25.4
Div Payout Ratio (%) 92.7 89.9 89.9 89.9 89.9
Net Interest Cover (x) NM NM NM NM NM
Page 70
Company Guide
Sheng Siong Group
Quarterly / Interim Income Statement (S$m)

FY Dec 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017
Revenue 209 189 202 197 217

Cost of Goods Sold (158) (139) (150) (145) (163)
Gross Profit 51.0 49.4 52.5 51.8 54.3
Other Oper. (Exp)/Inc (35.4) (33.3) (35.6) (35.3) (36.3)
Operating Profit 15.6 16.0 16.9 16.5 18.0
Net Interest (Exp)/Inc 0.34 0.20 0.02 0.01 0.02
Pre-tax Profit 19.8 18.4 19.1 18.9 20.6
Tax (3.4) (3.2) (3.4) (3.5) (3.5)
Minority Interest 0.0 0.0 0.0 0.0 0.01
Net Profit 16.4 15.2 15.7 15.4 17.1
Net profit bef Except. 16.4 15.2 15.7 15.4 17.1
EBITDA 23.0 22.1 22.8 22.6 24.3
Growth
Revenue Gth (%) 11.5 (9.5) 7.2 (2.7) 10.2
EBITDA Gth (%) 16.6 (4.0) 3.3 (1.1) 7.7
Opg Profit Gth (%) 9.9 2.5 5.2 (1.9) 9.0
Net Profit Gth (Pre-ex) (%) 12.4 (7.6) 3.3 (1.5) 11.0
Margins
Gross Margins (%) 24.5 26.1 25.9 26.3 25.0
Balance Sheet (S$m)

FY Dec 2015A 2016A 2017F 2018F 2019F
Net Fixed Assets 178 252 254 262 256

Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0
Other LT Assets 0.0 0.0 0.0 0.0 0.0
Cash & ST Invts 126 63.5 58.1 77.6 95.8
Inventory 52.5 61.9 61.3 62.6 66.2
Debtors 11.8 10.4 12.1 11.0 11.6
Other Current Assets 0.0 0.0 0.0 0.0 0.0
Total Assets 368 388 386 414 430
ST Debt 0.0 0.0 0.0 0.0 0.0

Creditor 109 118 108 127 135
Other Current Liab 12.6 13.0 14.1 14.8 15.7
LT Debt 0.0 0.0 0.0 0.0 0.0
Other LT Liabilities 2.24 2.45 2.45 2.45 2.45
Shareholders Equity 244 252 259 266 274
Total Cap. & Liab. 368 388 386 414 430
Non-Cash Wkg. Capital (57.1) (58.3) (48.3) (68.5) (72.9)

Net Cash/(Debt) 126 63.5 58.1 77.6 95.8
Asset Turnover (x) 2.1 2.1 2.1 2.1 2.1
Current Ratio (x) 1.6 1.0 1.1 1.1 1.2
Quick Ratio (x) 1.1 0.6 0.6 0.6 0.7
Net Debt/Equity (X) CASH CASH CASH CASH CASH
Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH
Capex to Debt (%) N/A N/A N/A N/A N/A
Z-Score (X) 10.0 9.3 9.9 8.8 8.8
Page 71
Company Guide
Sheng Siong Group
Cash Flow Statement (S$m)

FY Dec 2015A 2016A 2017F 2018F 2019F
Pre-Tax Profit 67.7 76.2 82.7 86.9 92.2

Dep. & Amort. 13.4 14.9 15.1 15.5 16.4
Tax Paid (10.7) (12.6) (13.0) (14.1) (14.8)
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. 2.54 0.77 (11.0) 19.5 3.50
Other Operating CF 0.52 (1.2) 0.0 0.0 0.0
Net Operating CF 73.5 78.1 73.7 108 97.4
Capital Exp.(net) (30.4) (89.3) (17.5) (23.5) (10.5)
Other Invts.(net) 0.0 0.0 0.0 0.0 0.0
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 Includes S$13m
Other Investing CF 1.22 0.57 0.0 0.0 0.0 warehouse capex
Net Investing CF (29.2) (88.7) (17.5) (23.5) (10.5)
Div Paid (48.9) (54.8) (61.7) (64.7) (68.8)
Chg in Gross Debt 0.0 0.0 0.0 0.0 0.0 Includes S$7m
Capital Issues 0.0 0.0 0.0 0.0 0.0 warehouse capex
Other Financing CF 0.0 2.59 0.0 0.0 0.0
Net Financing CF (48.9) (52.2) (61.7) (64.7) (68.8)
Currency Adjustments 0.04 0.40 0.0 0.0 0.0
Chg in Cash (4.5) (62.4) (5.5) 19.6 18.2
Opg CFPS (S cts) 4.72 5.14 5.64 5.87 6.25
Free CFPS (S cts) 2.86 (0.7) 3.74 5.61 5.78
Source: DBS Bank

Analyst: Alfie YEO
Andy SIM CFA
Page 72
Thailand Company Guide
CP ALL
Version 5 | Bloomberg: CPALL TB | Reuters: CPALL.BK Refer to important disclosures at the end of this report
DBS Group Research . Equity 4 May 2017
BUY Sustainable growth

Last Traded Price ( 3 May 2017): Bt61.00 (SET : 1,564.12)
Price Target 12-mth: Bt75.00 (23% upside) Maintain BUY. We like CPALL for its business resilience,
Potential Catalyst: Positive SSSG despite slow domestic economy, continuous network expansion success, margin expansion from
aggressive store expansion improving product mix, and lower interest expense on debt
repayment and refinancing. Thus, we expect earnings growth of
Analyst c.20% in the next three years. CPALL is now trading below its 5-
Namida ARTISPONG +66 2657 7833 namidaa@th.dbsvickers.com year average PE of 30x, which is justified by our 3-year earnings
growth forecast of 20%.
Decent earnings growth despite slowing SSSG in 1Q17F.
Whats New Consumer spending was sluggish but food retailers are still
Expect decent 1Q17F earnings growth despite defensive plays. We expect CPALLs convenient store
slowing SSSG operations (CVS) to deliver SSSG of 1.5%, vs a contraction in
To reach 13,000 stores by 2021, with no sign of 4Q16 while its cash-and-carry business should post much
stronger SSSG from solid demand from HORECA and softer
saturation
competition following BIGCs business strategy to discontinue
Flexible product mix to cater to changing giving discount coupons to big-basket customers. Overall, we
consumer trends estimate CPALLs 1Q17F revenue to rise by 8.8% y-o-y and
earnings to grow by 11.5% to Bt4.5bn. CVSs improving
product mix and softer competition for cash and carry are
expected to cause earnings growth to outpace sales growth.
Price Relative
Bt Relative Index No sign of saturation despite aggressive expansion. As at end-
FY16, CPALL operated 9,542 stores nationwide. It plans to
221
69.5
64.5 201
59.5 181 open at least 700 CVS stores p.a. in the next five years,
54.5
implying that CPALL will reach its previous target of 10,000
161
49.5
141
within this year. Its next store network target is 13,000 stores
44.5
121
39.5
in five years and 15,000 in seven years. We are not concerned

34.5 101
29.5 81
May-13 May-14 May-15 May-16 May-17
about market saturation as we think that the CVS market in
CP ALL (LHS) Relative SET (RHS)
Thailand still has room to grow. Despite aggressive store
Forecasts and Valuation rollouts, average customer visits per store have been
FY Dec (Bt m) 2015A 2016A 2017F 2018F maintained at above 1,200 customers per store per day, the
Revenue 391,817 434,712 490,697 551,182 highest among global 7-Eleven store operators. We believe its
EBITDA 32,554 36,473 41,481 47,187
Pre-tax Profit 16,884 20,142 24,390 30,443
aggressive outlet expansion is achievable given its small-sized
Net Profit 13,682 16,677 20,094 24,165 CVS store format, even in Bangkok in view of the upcoming
Net Pft (Pre Ex.) 13,687 16,599 20,094 24,165 new mass transit lines.
Net Pft Gth (Pre-ex) (%) 39.3 21.3 21.1 20.3
EPS (Bt) 1.52 1.86 2.24 2.69 Valuation:
EPS Pre Ex. (Bt) 1.52 1.85 2.24 2.69 Our TP of Bt75 is based on DCF valuation (WACC 10.4%,
EPS Gth Pre Ex (%) 39 21 21 20
Diluted EPS (Bt) 1.52 1.86 2.24 2.69
terminal growth rate 2%).
Net DPS (Bt) 0.80 0.90 1.12 1.34
BV Per Share (Bt) 4.16 6.14 7.45 8.79
Key Risks to Our View:
PE (X) 40.1 32.9 27.3 22.7 Key risks are (i) delays in store expansion, (ii) weaker-than-
PE Pre Ex. (X) 40.1 33.0 27.3 22.7 expected consumer confidence, and iii) intense competition.
P/Cash Flow (X) 17.4 14.4 14.9 13.0
EV/EBITDA (X) 22.1 19.4 16.8 14.6 At A Glance
Net Div Yield (%) 1.3 1.5 1.8 2.2 Issued Capital (m shrs) 8,983
P/Book Value (X) 14.7 9.9 8.2 6.9 Mkt. Cap (Btm/US$m) 547,969 / 15,860
Net Debt/Equity (X) 4.0 2.6 2.0 1.6 Major Shareholders (%)
ROAE (%) 40.2 36.0 32.9 33.1 C.P. Merchandising (%) 30.5
Earnings Rev (%): 0 0 Charoen Pokphand Group (%) 10.2
Consensus EPS (Bt): 2.18 2.59 Thai NDVR (%) 4.8
Other Broker Recs: B: 25 S: 0 H: 2
Free Float (%) 58.3
Source of all data on this page: Company, DBSVTH, Bloomberg Finance 3m Avg. Daily Val (US$m) 24.0
L.P ICB Industry : Consumer Services / Food & Drug Retailers

ed: CK / sa:CS, PY
Page 73
Company Guide
CP ALL
WHATS NEW
Sustainable growth
Decent earnings growth despite slowing SSSG in 1Q17F. Flexible product mix to support consumer trends. CPALLs
Consumer spending was sluggish but food retailers are still strategy is to add new products or services to the stores every
defensive plays. We expect CPALLs convenient store week. Its main concept revolves around offering the best-
operations (CVS) to deliver SSSG of 1.5%, vs a contraction in quality, exclusive products at its 7-eleven stores, as well as
4Q16 while its cash and carry business should post much being the first to sell newly-launched products. Meanwhile,
stronger SSSG from solid demand from HORECA and softer the product mix in each store is different from another and
competition following BIGCs business strategy to discontinue the company frequently changes its product mix to meet
giving discount coupons to big-basket customers. Overall, we changing consumer preferences.
estimate CPALLs 1Q17F revenue to rise by 8.8% y-o-y and
Maintain BUY. We like CPALL for its business resilience,
earnings to grow by 11.5% to Bt4.5bn. CVSs improving
continuous network expansion success, margin expansion
product mix and softer competition for cash and carry are
from improving product mix, and lower interest expense on
expected to cause earnings growth to outpace sales growth.
debt repayment and refinancing. Thus, we expect earnings
No sign of saturation despite aggressive expansion. As at growth of c.20% in the next three years. CPALL is now
end-FY16, CPALL operated 9,542 stores nationwide. The trading below its 5-year average PE of 30x, which is justified
company plans to open at least 700 CVS stores p.a. in the by our 3-year earnings growth forecast of 20%.
next five years, implying that CPALL will reach its previous
target of 10,000 within this year. Its next store network
target is 13,000 stores in five years and 15,000 in seven
years. We are not concerned about market saturation as we
think that the CVS market in Thailand still has room to grow.
Despite aggressive store rollouts, average customer visits per
store have been maintained at above 1,200 customers per
store per day, the highest among global 7-Eleven store
operators. We believe its aggressive outlet expansion is
achievable given its small-sized CVS store format, even in
Bangkok in view of the upcoming new mass transit lines.
CPALL: 1Q17F earnings preview

FY Dec (Btm) 1Q16 4Q16 1Q17F Chg. Chg.
y-o-y q-o-q
Revenue 104,969 111,103 114,206 9% 3%
COGS (82,253) (86,800) (89,423) 9% 3%
Gross Profit 22,716 24,303 24,783 9% 2%
SG&A (19,420) (21,513) (21,357) 10% (1%)
Other opt. Inc. 3,713 4,336 4,203 13% (3%)
Opt. Profit 7,009 7,126 7,629 9% 7%
Non-opt. Inc./Exp. 0 0 0 nm nm
Int. Inc. 46 75 51 12% (32%)
EBIT 7,055 7,202 7,680 9% 7%
Extra Gain/(Loss) 59 (17) 0 nm nm
Pretax Profit 5,059 5,053 5,569 10% 10%
Tax (960) (714) (1,002) 4% 40%
MI (34) (38) (34) (1%) (9%)
Net Profit 4,065 4,301 4,532 12% 5%
Norm Profit 4,006 4,318 4,532 13% 5%
EPS 0.45 0.48 0.50 12% 5%
Gross Margin 21.6% 21.9% 21.7%
SGA % Sales (18.5%) (19.4%) (18.7%)
EBIT Margin 6.7% 6.5% 6.7%
Net Margin 3.9% 3.9% 4.0%
Eff. Tax Rate % (19.0%) (14.1%) (18.0%)
Source of all data: Company, DBSVTH
Page 74
Company Guide
CP ALL
Same-store-sales (%)
5 5
5.1
Earnings Drivers: 3.9
Aggressive outlet expansion. As at end-2016, CPALL had a 2.8 2.4
total of 9,542 outlets nationwide, with 44% in Bangkok and 1.7

0.9
surburban areas, and the remaining in provincial regions. 0.5
Despite the slow domestic economy recovery, CPALL will -0.6
continue to aggressively expand its network. It targets to add at -1.7
least 700 outlets p.a. and has a milestone to reach 13,000 -2.9 -2.6
stores in the next five years. Of the total additional 700 stores 2014A 2015A 2016A 2017F 2018F
p.a., 90% of the new stores would be on a standalone basis Spending per ticket (Bt)
while another 10% will be at PTT gas stations. Furthermore,
68.2 65.5 66.9
more than half of new outlets would be in provincial areas as 63 63 64.3
there is ample potential demand with a much higher population 54.6
per store compared to Bangkok.

40.9
SSSG in positive territory. Amid weak consumption sentiment, 27.3
Thai consumers are now more cautious and are spending on

13.6
smaller-ticket items and making more frequent shopping trips.
This trend is favourable for convenience stores and mini- 0.0
2014A 2015A 2016A 2017F 2018F
supermarkets formats. CPALL has been delivering positive SSSG,
outperforming other retailers who have mostly registered Customers/store/day
negative growth. As c.71% of its product mix is generated from 1267 1274 1280
1305.61 1252 1261
food (ready-to-eat meals, processed foods, bakery, snacks,
beverages, etc.) which is a staple, we expect CPALLs operations 1044.49
and SSSG to be resilient.

783.37
Solid gross margin. We expect economies of scale from outlet 522.24
expansion and larger contribution from higher-margin products

261.12
to support CPALLs margins. With a larger network, CPALL will
be leveraging its high bargaining power on supply contracts. 0.00
The group will continue to add high-margin product lines like 2014A 2015A 2016A 2017F 2018F
ready-to-eat meals and from the health and beauty category New Stores
which yield higher margins than other products. 698 705 710 700 700
Lower financing expenses. Although CPALL has launched 573.7
aggressive promotion campaigns amid weak consumption, an 430.3

increase in other income should more than offset rising SG&A
286.8
to total sales. Meanwhile, electricity charges which account for
10% of its SG&A expenses were lower due to the decline in oil 143.4
prices. Additionally, the expenses related to the acquisition of

0.0
MAKRO such as financial management fees and forex costs 2014A 2015A 2016A 2017F 2018F
should also decline. CPALL completed its loan refinancing in
2Q15 by issuing debentures to replace high-cost bank loans. Total stores at year end
10942
11051.4 10242
9542
8832
8841.1 8127
6630.9
4420.6
2210.3
0.0
2014A 2015A 2016A 2017F 2018F
Source: Company, DBSVTH
Page 75
Company Guide
CP ALL

Balance Sheet: 1.6
Expect gearing to decline. Following the MAKRO acquisition, 5.00

1.6
1.5
CPALLs net gearing surged to 4.9x in FY13. Nonetheless, its net 1.5
4.00
gearing dropped to 2.6x as at end-FY16, thanks to the nature 1.4
of its business being cash generative and providing good 3.00 1.4
levels of free cash flow. 2.00

1.3
1.3
1.00 1.2
Share Price Drivers: 1.2
Resilient SSSG. Despite the weak domestic economy, CPALLs 0.00

2014A 2015A 2016A 2017F 2018F
1.1
SSSG momentum is expected to remain positive, thanks to its Gross Debt to Equity (LHS) Asset Turnover (RHS)
leading position in the convenient store market and attractive

Capital Expenditure
products and sales promotions. Consumers tend to spend on Btm
small-ticket items and making more frequent shopping trips 19,500.0
19,000.0
which are favourable for convenience stores and mini- 18,500.0
supermarkets formats. Going forward, domestic consumption 18,000.0

17,500.0
should improve slowly, supported by the governments stimulus 17,000.0
packages and public infrastructure spending. 16,500.0

16,000.0
15,500.0
Key Risks: 15,000.0

14,500.0
Weak consumer confidence. CPALLs business may suffer if 2014A 2015A 2016A 2017F 2018F
consumer confidence (as measured by the Consumer Capital Expenditure (-)
Confidence Index) in Thailand weakens because of an ROE (%)

economic slowdown or domestic political unrest. In any case, 40.0%
CPALL tends to adjust its product mix in response to changing 35.0%
economic conditions. 30.0%
25.0%
Unfavourable weather conditions. Customer traffic at CPALLs 20.0%
stores mostly involves walk-ins. Unfavourable weather 15.0%
conditions could deter walk-in customers. CPALL normally 10.0%
registers softer sales during the rainy season. 5.0%
0.0%
2014A 2015A 2016A 2017F 2018F
Company Background
CP ALL PCL was established in 1988 and is a flagship company Forward PE Band (x)
of Charoen Pokphand Groups marketing and distribution (x)
business. It is the leading operator of convenience store chains 43.1
(7-Eleven) in Thailand with the highest market share. 38.1 +2sd:38.5x

Additionally, it also operates other related businesses such as
+1sd:33.9x
bill payment collection service, manufacturing and sales of 33.1
frozen foods and bakery, etc. 28.1

Avg:29.3x
1sd:24.7x
23.1
2sd:20.2x
18.1
PB Band (x)
(x)
15.7
14.7 +2sd:14.63x
13.7
+1sd:13.13x
12.7
11.7 Avg:11.64x
10.7
1sd:10.15x
9.7
8.7 2sd:8.65x
7.7
Page 76
Company Guide
CP ALL
Key Assumptions
FY Dec 2014A 2015A 2016A 2017F 2018F
Same-store-sales (%) (2.6) 0.90 2.40 5.00 5.00
Spending per ticket (Bt) 63.0 63.0 64.3 65.6 66.9
Customers/store/day 1,252 1,261 1,267 1,274 1,280
New Stores 698 705 710 700 700
Total stores at year end 8,127 8,832 9,542 10,242 10,942
Income Statement (Btm)

FY Dec 2014A 2015A 2016A 2017F 2018F
Revenue 357,766 391,817 434,712 490,697 551,182
Gross Profit 76,323 85,299 95,024 108,565 122,607
Operating Profit 20,493 25,269 28,278 32,306 37,209
Net Interest (Exp)/Inc (8,281) (8,381) (8,213) (7,916) (6,766)
Exceptional Gain/(Loss) 377 (4.2) 77.1 0.0 0.0
Pre-tax Profit 12,589 16,884 20,142 24,390 30,443
Tax (2,270) (3,066) (3,323) (4,127) (6,089)
Minority Interest (119) (135) (143) (169) (190)
Net Profit 10,200 13,682 16,677 20,094 24,165
Net Profit before Except. 9,823 13,687 16,599 20,094 24,165
EBITDA 26,802 32,554 36,473 41,481 47,187
Growth
Revenue Gth (%) 31.4 9.5 10.9 12.9 12.3
EBITDA Gth (%) 35.5 21.5 12.0 13.7 13.8
Opg Profit Gth (%) 35.9 23.3 11.9 14.2 15.2
Net Profit Gth (Pre-ex) (%) (10.7) 39.3 21.3 21.1 20.3
Margins & Ratio
Gross Margins (%) 21.3 21.8 21.9 22.1 22.2
ROAE (%) 34.3 40.2 36.0 32.9 33.1
ROA (%) 3.2 4.2 4.9 5.6 6.6
ROCE (%) 6.8 8.2 9.1 9.9 11.1
Div Payout Ratio (%) 72.1 52.5 48.5 50.0 50.0
Page 77
Company Guide
CP ALL
Quarterly / Interim Income Statement (Btm)

FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016
Revenue 96,364 102,608 104,969 109,998 108,642

Gross Profit 21,296 22,417 22,716 23,962 24,042
Net Interest (Exp)/Inc (2,031) (2,035) (2,009) (2,048) (2,100)
Pre-tax Profit 4,015 4,697 5,059 5,046 4,985
Tax (718) (790) (960) (817) (832)
Minority Interest (38.6) (30.2) (34.5) (32.6) (38.0)
Net Profit 3,258 3,877 4,065 4,196 4,115
Net profit bef Except. 3,232 3,851 4,006 4,188 4,087
EBITDA 7,906 8,410 8,949 9,127 8,997
Growth
Revenue Gth (%) (1.0) 6.5 2.3 4.8 (1.2)
EBITDA Gth (%) 1.0 6.4 6.4 2.0 (1.4)
Opg Profit Gth (%) (0.3) 11.4 4.5 1.1 (0.4)
Net Profit Gth (Pre-ex) (%) 1.8 19.1 4.0 4.5 (2.4)
Margins
Gross Margins (%) 22.1 21.8 21.6 21.8 22.1
Balance Sheet (Btm)

FY Dec 2014A 2015A 2016A 2017F 2018F
Net Fixed Assets 80,201 89,447 99,127 106,735 113,472

Other LT Assets 181,525 182,663 183,242 183,156 183,074
Cash & ST Invts 33,436 22,921 34,819 30,805 25,817
Inventory 22,167 25,072 26,705 31,895 35,827
Debtors 910 854 1,026 1,159 1,301
Other Current Assets 8,170 8,126 7,349 8,084 8,893
Total Assets 326,410 329,083 352,268 361,833 368,384
ST Debt 19,701 23,803 31,554 31,869 31,547

Creditor 59,312 62,624 66,959 75,325 84,480
Other Current Liab 13,002 14,705 15,305 16,783 18,405
LT Debt 178,779 165,684 157,552 145,199 129,168
Other LT Liabilities 20,558 20,593 21,295 21,295 21,295
Minority Interests 4,276 4,326 4,407 4,451 4,496
Total Cap. & Liab. 326,410 329,083 352,268 361,833 368,384
Non-Cash Wkg. Capital (41,066) (43,276) (47,184) (50,970) (56,864)

Net Cash/(Debt) (165,044) (166,566) (154,287) (146,263) (134,897)
Asset Turnover (x) 1.1 1.2 1.3 1.4 1.5
Current Ratio (x) 0.7 0.6 0.6 0.6 0.5
Quick Ratio (x) 0.4 0.2 0.3 0.3 0.2
Net Debt/Equity (X) 4.7 4.0 2.6 2.0 1.6
Net Debt/Equity ex MI (X) 5.4 4.5 2.8 2.2 1.7
Capex to Debt (%) 8.1 10.0 8.6 9.3 10.2
Z-Score (X) 2.4 2.5 2.6 2.8 3.0
Page 78
Company Guide
CP ALL
Cash Flow Statement (Btm)

FY Dec 2014A 2015A 2016A 2017F 2018F
Pre-Tax Profit 12,589 16,884 20,142 24,390 30,443

Dep. & Amort. 6,310 7,285 8,195 9,175 9,978
Tax Paid (2,270) (3,066) (3,322) (4,126) (6,088)
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. 3,850 5,065 8,060 3,733 5,839
Other Operating CF 0.0 0.0 0.0 0.0 0.0
Net Operating CF 26,371 31,419 37,939 36,688 42,041
Capital Exp.(net) (16,019) (19,010) (16,263) (16,450) (16,450)
Other Invts.(net) (182) (68.3) 27.4 0.0 0.0
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF 242 1,669 (2,559) (2,610) (2,662)
Net Investing CF (15,958) (17,409) (18,794) (19,060) (19,112)
Div Paid (8,085) (7,186) (8,085) (9,742) (11,715)
Chg in Gross Debt 12,798 (9,177) (779) (12,038) (16,353)
Capital Issues 0.0 0.0 0.0 0.0 0.0
Other Financing CF (7,543) (8,416) 1,631 0.0 0.0
Net Financing CF (2,830) (24,780) (7,233) (21,780) (28,068)
Currency Adjustments (10.6) 83.9 12.5 0.0 0.0
Chg in Cash 7,572 (10,686) 11,925 (4,152) (5,139)
Opg CFPS (Bt) 2.51 2.93 3.33 3.67 4.03
Free CFPS (Bt) 1.15 1.38 2.41 2.25 2.85
Bt
12- mt h
12 Dat e of Closing
63.70 6 Report Pric e
Pric e
8 10
11 1: 12 May 16 48.00 60.00 BUY
2: 24 May 16 47.75 60.00 BUY
58.70 7 9 3: 25 May 16 48.25 60.00 BUY
13
4: 02 J un 16 49.00 60.00 BUY
5: 03 Aug 16 52.00 60.00 BUY
53.70 6: 31 Aug 16 62.25 75.00 BUY
7: 06 Sep 16 60.50 75.00 BUY
4 5 8: 03 Oct 16 61.00 75.00 BUY
48.70
2
9: 20 Oct 16 60.75 75.00 BUY
10: 04 Nov 16 60.75 75.00 BUY
1 3
11: 10 Nov 16 63.00 75.00 BUY
43.70 12: 06 Jan 17 63.75 75.00 BUY
May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 13: 24 Feb 17 59.75 75.00 BUY
Source: DBSVTH
Analyst: Namida ARTISPONG
THAI-CAC Declared
Corporate Governance CG Rating 2016 n/a
THAI-CAC is Companies participating in Thailand's Private Sector Score Description

Collective Action Coalition Against Corruption programme (Thai Declared Companies that have declared their intention to join CAC
CAC) under Thai Institute of Directors (as of October 28, 2016) are Certified Companies certified by CAC.
categorised into:
Score Range Number of Logo Description
Corporate Governance CG Rating is based on Thai Institute of
Directors (IOD)s annual assessment of corporate governance 90-100 Excellent
practices of listed companies. The assessment covers 235 criteria 80-89 Very Good
in five categories including board responsibilities (35% weighting), 70-79 Good
disclosure and transparency (20%), role of stakeholders (20%),
equitable treatment of shareholders (10%) and rights of 60-69 Satisfactory
shareholders (15%). The IOD then assigns numbers of logos to 50-59 Pass
each company based on their scoring as follows: <50 No logo given N/A
Page 79
Regional Company Guide
Robinsons Retail Holdings
Version 6 | Bloomberg: RRHI PM | Reuters: RRHI.PS Refer to important disclosures at the end of this report
DBS Group Research . Equity 17 July 2017
BUY In a stronger position

Last Traded Price ( 17 Jul 2017): P87.00 (PCOMP : 7,934.50) Maintain BUY, TP raised to P101.00 as we roll over our
Price Target 12-mth: P101 (16% upside) (Prev P93.00) valuation base to FY18F. Robinsons Retail Holdings' (RRHI)
growth profile remains bright backed by long-term positive
Potential Catalyst: Faster store rollout, M&A, and margin recovery industry data and robust economic activity. There is ample room
Where we differ: FY17/18F earnings are above consensus estimates for growth as the Philippine modern retail industry remains
underpenetrated and could get a boost from the governments
Analyst planned infrastructure spending. With its aggressive expansion
Regional Research Team
plan and large war chest, RRHI is our top pick for broad
equityresearch@dbs.com
exposure in the Philippines growing modern retail industry. Our
TP of 101.00 has an implied PE of 22.4x undemanding given
Whats New it is just slightly above historical mean valuations.
More upside than downside
Better balance sheet and inventory controls More upside risk earnings potential than downside. 1.) Passage
of the tax reform packages could provide tailwinds to our
Maintain BUY, TP raised to P101.00 conservative sales forecast of 11% (CAGR FY17F-FY19F). The
lowering of income tax rates should result in positive wealth
Price Relative effect to middle-income households RRHIs target market. 2.)
Margins are set to improve as the slack from the closure of non-
performing stores is expected to fade in FY18F. RRHI reported
lower operating margins in the past two years mainly due to
closing costs of non-performing stores. 3.) Future M&As, which
are not factored in our estimates could provide further earnings
upside.. Since its IPO, RRHI has consistently delivered on EPS-
accretive acquisitions.
Better balance sheet and inventory management in the face of

rising bargaining power of suppliers. RRHI's high net cash
FY Dec (P m) 2016A 2017F 2018F 2019F position provides cushion against a backdrop of declining
Revenue 105,293 118,035 130,948 144,264 payables days. Moreover, RRHIs superior inventory
EBITDA 7,964 8,955 10,022 11,139 management has helped it maintain negative cash conversion
Pre-tax Profit 6,667 7,493 8,380 9,365 cycle (CCC) days despite acquiring businesses with longer
Net Profit 4,830 5,576 6,236 6,968 inventory days.
Net Pft (Pre Ex.) 4,830 5,576 6,236 6,967
Valuation:
EPS (P) 3.49 4.03 4.50 5.03
EPS Pre Ex. (P) 3.49 4.03 4.50 5.03 BUY, TP at P101.00, based on SOTP valuation methodology.
EPS Gth (%) 11 15 12 12 Our TP implies FY18F/19F PEs of 22x/20x.
EPS Gth Pre Ex (%) 11 15 12 12
Diluted EPS (P) 3.49 4.03 4.50 5.03 Key Risks to Our View:
Net DPS (P) 0.68 0.75 0.87 0.97 Key risks to our forecast are: 1) competition intensifying more
BV Per Share (P) 34.4 37.6 41.3 45.3
PE (X) 24.9 21.6 19.3 17.3
than assumed; 2) fewer number of new store rollouts; and 3)
PE Pre Ex. (X) 24.9 21.6 19.3 17.3 more closures of non-performing stores.
P/Cash Flow (X) 19.5 22.7 13.5 12.1 At A Glance
EV/EBITDA (X) 14.7 13.1 11.3 9.8 Issued Capital (m shrs) 1,385
Net Div Yield (%) 0.8 0.9 1.0 1.1 Mkt. Cap (Pm/US$m) 120,495 / 2,380
P/Book Value (X) 2.5 2.3 2.1 1.9 Major Shareholders (%)
Net Debt/Equity (X) CASH CASH CASH CASH JE Holdings Sdn Bhd 35.0
ROAE (%) 10.6 11.2 11.4 11.6
Gokongwei Lance Yu 7.7
Earnings Rev (%): 0 0 0 Free Float (%) 45.7
Consensus EPS (P): 3.8 4.3 4.8
Other Broker Recs: B: 10 S: 0 H: 2 ICB Industry : Consumer Services /
Source of all data on this page: Company, DBS Bank,
Bloomberg Finance L.P
ed: TH / sa: AS
Page 80
Company Guide
GFA growth %
Earnings Drivers:
Growth via organic GFA expansion and margin expansion.
Due to the higher number of non-performing stores that
were closed in FY15 (48 stores closed), RRHIs store network
grew by only 179 stores, representing a 9.7% increase in
gross floor area (GFA) in FY15. This resulted in slower revenue
growth (from 19.5% y-o-y in FY14 to 13% y-o-y in FY15),
and operating margins contracted by 4bps in FY15. In FY16,
RRHI continued to close down non-performing stores but to a Same-store-sales growth %
lesser extent relative to FY15. As a result, margins stabilised.
Moving into FY17F/FY18F/FY19F, we expect fewer store
closures and GFA to expand 8.0%/7.4%/6.8%. These should
support revenue growth and steady/improve operating
margins.
Consumer confidence is key. RRHI reported robust SSSG of
6.7% y-o-y in FY16 underpinned by still strong consumer
confidence post elections. We do not think the strong SSSG
figures reported in FY16 can be sustained in FY17F. SSSG
should normalise to 3-4% as the boost from election-related
spending wears off. Consumer confidence will be key post
elections. Given the high approval rating of President Duterte Source: Company, DBS Bank
amid his controversial war on drugs and anti-western
comments, we see no reason for consumer confidence to
deteriorate in the near-to-medium term. Furthermore, the
stronger post-election GDP and the likely approval of the tax
reform proposal (likely to be implemented in 2H17) should
underpin higher consumer confidence. Against this backdrop,
RRHI is best positioned to benefit given its broad and
countrywide exposure in the Philippine modern retail space.
Acquisitions and expansion into other retail formats. RRHI
continues to be on a lookout for value-enhancing acquisitions
and opportunities to expand its retail format. So far, only one
acquisition in 2016 has been announced (51% of The
Generics Pharmacy). We see RRHI announcing at least one
acquisition in FY17F. RRHI has a large war chest that is more
than enough to fund a large and high-profile M&A. Our
FY17F-19F earnings do not take into account any
acquisitions.
Industry backdrop is conducive for growth. Low penetration
of modern retail (25% overall and 30% grocery based on
Euromonitor data as of end-2016); rising household
disposable income (6.2% CAGR in FY00-16) which is
underpinned by jobs growth, low inflation, and increase in
compensation of government employees moving forward;
and favourable demographics, are factors supporting store
expansion in the Philippine modern retail space. We think
Dutertes administration will allocate more resources to
Visayas and Mindanao. These are areas where modern retail
is very much underpenetrated and where RRHI is ahead
relative to its main competitors.
Page 81
Company Guide

Balance Sheet:
Inundated with cash. RRHI has been in a net cash position
since its IPO. Even with its aggressive expansion plans, capex
can be funded with internally generated cash. Its cash
conversion cycle had turned positive as at 9M16 due to
consolidation of TGP and inventory build-up ahead of the
holiday season. However, RRHI ended FY16 with negative
cash conversion cycle days (-8.5 days).

Operating margin turnaround. We expect closures of non- Capital Expenditure
performing stores to taper off in FY17F and FY18F. Operating
margins appear to have stabilised in the last five quarters.
Having said this, we project operating margins to gradually
improve in FY17F and FY18F.
Valuation to catch up. The counter has performed well so far

this year. Despite this, there is still headroom for further
upside. RRHI is trading at 19x FY18F PE, which is
undemanding relative to its historical valuation.
Key Risks: ROE (%)

Expansion constraints plus competition. Availability of space
(right size and location), rent cost, and securing business
permits (especially in areas where local retailers have deep
roots within the community) are critical factors to the success
of RRHIs expansion plans. The current level of competition,
stemming from big-chain players and local mom-and-pop
retailers, pose extra challenges to RRHI's expansion plans.
Closure of non-performing stores erodes margins. There is

the possibility of more store closures in FY17F, especially in
RRHIs weaker segments - department stores, convenience Forward PE Band (x)
stores, and specialty stores. Significant markdowns and
closing costs are detrimental to margins.
More restrictions on liquor and cigarette consumption are

likely to be imposed under the Duterte administration. We see
limited impact on RRHIs supermarkets. However, sales may
deteriorate at its convenience store segment. Liquor and
cigarettes accounted for 12% for Ministop sales in FY16.
Company Background PB Band (x)

Robinsons Retail Group (RRHI) is a holding company which is
involved in and solely focused on retailing. The company
operates retail outlets in various channels such as
supermarkets, department stores, DIY outlets, convenience
stores, drugstores, and specialty stores.
Page 82
Company Guide
Key Assumptions
FY Dec 2015A 2016A 2017F 2018F 2019F
GFA growth % 9.70 7.30 8.00 7.40 6.80
Same-store-sales growth 4.10 6.70 3.00 3.00 3.00
Segmental Breakdown
FY Dec 2015A 2016A 2017F 2018F 2019F
Revenues (P m)
Supermarket 43,238.7 48,465.1 54,609.5 60,320.7 66,318.8
Department Store 14,906.0 15,827.5 17,681.8 20,034.9 22,385.6
Hardware 9,871.8 11,128.6 12,775.4 14,445.5 16,173.5
Convenience Store 5,493.0 5,665.5 6,227.7 6,784.1 7,354.9
At the low end of
Drug Store 8,069.5 11,934.2 13,473.6 15,350.6 17,224.0
managements guidance
Specialty Stores 10,358.6 13,416.1 14,563.3 15,450.2 16,391.1
Adjustments (1,055.1) (1,143.7) (1,296.2) (1,438.0) (1,584.2)
Total 90,883 105,293 118,035 130,948 144,264
EBIT (P m)
Supermarket 2,380.22 2,706.86 3,077.34 3,459.49 3,869.82
Department Store 919.10 844.10 951.84 1,098.54 1,249.82
Hardware 747.73 841.96 985.72 1,136.25 1,288.35
Convenience Store 6.11 (54.79) (57.11) (55.43) (52.74)
Drug Store 311.48 628.11 715.87 830.94 949.58
Specialty Stores 373.54 535.72 581.53 616.94 654.51
Adjustments (9.34) (9.08) (10.34) (11.71) (13.16)
Total 4,729 5,493 6,245 7,075 7,946
EBIT Margins (%)
Supermarket 5.5% 5.6% 5.6% 5.7% 5.8%
Department Store 6.2% 5.3% 5.4% 5.5% 5.6%
Hardware 7.6% 7.6% 7.7% 7.9% 8.0%
Convenience Store 0.1% -1.0% -0.9% -0.8% -0.7%
Drug Store 3.9% 5.3% 5.3% 5.4% 5.5%
Specialty Stores 3.6% 4.0% 4.0% 4.0% 4.0%
Adjustments 5.5% 5.6% 5.6% 5.7% 5.8%
Total 5.2 5.2 5.3 5.4 5.5
Page 83
Company Guide
Income Statement (P m)
FY Dec 2015A 2016A 2017F 2018F 2019F
Revenue 90,883 105,293 118,035 130,948 144,264
Gross Profit 19,749 23,026 25,943 28,925 32,013
Other Non Opg (Exp)/Inc 295 331 331 331 331
Associates & JV Inc 40 103 103 103 103
Net Interest (Exp)/Inc 784 741 813 870 982
Exceptional Gain/(Loss) 0 0 0 0 1
Pre-tax Profit 5,848 6,667 7,493 8,380 9,365
Tax (1,271) (1,471) (1,653) (1,849) (2,066)
Preference Dividend 0 0 0 0 0
Net Profit 4,342 4,830 5,576 6,236 6,968 Conservative gross
Net Profit before Except. 4,342 4,830 5,576 6,236 6,967 margin assumptions
EBITDA 6,712 7,964 8,955 10,022 11,139 relative to historical
Growth
Revenue Gth (%) 13.0 15.9 12.1 10.9 10.2
EBITDA Gth (%) 14.2 18.7 12.4 11.9 11.1
Opg Profit Gth (%) 5.4 16.2 13.7 13.3 12.3
Margins & Ratio
Gross Margins (%) 21.7 21.9 22.0 22.1 22.2
ROAE (%) 10.4 10.6 11.2 11.4 11.6
ROA (%) 7.1 6.8 7.1 7.5 7.6
ROCE (%) 8.0 7.9 8.0 8.3 8.6
Div Payout Ratio (%) 16.8 19.4 18.7 19.3 19.3
Net Interest Cover (x) NM NM NM NM NM
Page 84
Company Guide
Quarterly / Interim Income Statement (P m)

FY Dec 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017
Revenue 22,696 25,638 25,479 31,481 25,723

Gross Profit 4,805 5,587 5,575 7,059 5,719
Operating Profit 904 1,396 1,340 1,853 1,159
Other Non Opg (Exp)/Inc (45) 98 146 132 60
Associates & JV Inc 26 27 34 15 25
Net Interest (Exp)/Inc 187 176 197 181 185
Pre-tax Profit 1,073 1,697 1,716 2,182 1,429
Tax (239) (365) (354) (513) (328)
Net Profit 785 1,238 1,278 1,529 996
Net profit bef Except. 785 1,238 1,278 1,529 996
EBITDA 1,329 2,022 2,006 2,608 1,736
Growth
Revenue Gth (%) (17.7) 13.0 (0.6) 23.6 (18.3)
EBITDA Gth (%) (37.1) 52.1 (0.8) 30.0 (33.4)
Opg Profit Gth (%) (44.4) 54.4 (4.0) 38.3 (37.5)
Net Profit Gth (Pre-ex) (%) (42.7) 57.8 3.3 19.6 (34.9)
Margins
Gross Margins (%) 21.2 21.8 21.9 22.4 22.2
Net Profit Margins (%) 3.5 4.8 5.0 4.9 3.9 Improving margins y-o-y
Balance Sheet (P m)
FY Dec 2015A 2016A 2017F 2018F 2019F
Net Fixed Assets 11,149 12,562 14,080 15,478 16,701

Invts in Associates & JVs 3,425 3,424 3,526 3,629 3,732
Other LT Assets 26,783 30,477 30,477 30,477 30,477
Cash & ST Invts 9,764 12,718 13,185 16,981 21,593
War chest that can be easily
Inventory 10,576 13,342 13,670 15,145 16,665 liquidated
Debtors 1,774 1,988 3,013 3,343 3,683
Other Current Assets 1,688 2,185 2,185 2,185 2,185
Total Assets 65,160 76,695 80,136 87,238 95,033
ST Debt 2,845 6,576 6,576 6,576 6,576

Creditor 14,796 16,797 14,622 16,200 17,825
Other Current Liab 885 1,106 1,923 2,119 2,336
LT Debt 0 0 0 0 0
Minority Interests 1,982 2,978 3,241 3,535 3,863
Total Cap. & Liab. 65,160 76,695 80,136 87,238 95,033
Non-Cash Wkg. Capital (1,643) (388) 2,322 2,354 2,371

Net Cash/(Debt) 6,920 6,142 6,609 10,405 15,017
Asset Turnover (x) 1.5 1.5 1.5 1.6 1.6
Current Ratio (x) 1.3 1.2 1.4 1.5 1.7
Quick Ratio (x) 0.6 0.6 0.7 0.8 0.9
Net Debt/Equity (X) CASH CASH CASH CASH CASH
Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH
Capex to Debt (%) 109.3 49.4 57.7 59.5 60.5
Z-Score (X) 5.6 4.7 5.1 5.0 5.0
Page 85
Company Guide
Cash Flow Statement (P m)

FY Dec 2015A 2016A 2017F 2018F 2019F
Pre-Tax Profit 5,848 6,667 7,492 8,378 9,362

Dep. & Amort. 1,647 (2,038) 2,276 2,512 2,757
Tax Paid (1,268) (1,393) (836) (1,653) (1,849)
Assoc. & JV Inc/(loss) (40) (103) (103) (103) (103)
Chg in Wkg.Cap. (1,366) (1,039) (3,528) (227) (234)
Other Operating CF (372) 4,075 0 0 0
Net Operating CF 4,449 6,169 5,301 8,908 9,934
Capital Exp.(net) (3,109) (3,246) (3,794) (3,910) (3,979)
Other Invts.(net) (1,359) (531) 0 0 0
Invts in Assoc. & JV (4,144) (2,180) 0 0 0
Div from Assoc & JV 84 112 0 0 0 Capex can be funded
Other Investing CF 1,694 (80) 0 0 0 by internally generated
Net Investing CF (6,835) (5,924) (3,794) (3,910) (3,979) cashflow
Div Paid (729) (936) (1,041) (1,201) (1,344)
Chg in Gross Debt 2,733 3,731 0 0 0
Capital Issues 0 0 0 0 0
Other Financing CF 167 (87) 0 0 0
Net Financing CF 2,172 2,709 (1,041) (1,201) (1,344)
Currency Adjustments 0 0 0 0 0
Chg in Cash (213) 2,953 467 3,796 4,612
Opg CFPS (P) 4.2 5.2 6.4 6.6 7.3
Free CFPS (P) 1.0 2.1 1.1 3.6 4.3
Page 86
Company Guide
Source: DBS Bank

Analyst: Regional Research Team
Page 87
Regional Company Guide
Puregold Price Club
Version 5 | Bloomberg: PGOLD PM | Reuters: PGOLD.PM Refer to important disclosures at the end of this report
DBS Group Research . Equity 16 May 2017

Devil in the details part deux
HOLD Puregold Price Club (PGOLD), HOLD and TP at P41.90. We are
Last Traded Price ( 15 May 2017): P42.95 (PCOMP : 7,772.93) projecting 9.2%/9.7% net profit growth for FY17F/FY18F. The
Price Target 12-mth: P41.90 (2% downside) slower earnings growth is due to lesser impact of new stores on
revenue growth, higher inflation, and competition. Cash
Potential Catalyst: Faster store rollouts, M&A, and recovery in both
conversion cycle (CCC) will continue to deteriorate on rising
Puregold and S&R
inventory levels and management preference on paying supplier
Where we differ: FY17F/FY18F earnings are below consensus
early to avail discounts. Industry outlook remains bright and
Analyst PGOLDs long-term earnings prospects are attractive. However,
Regional Research Team we anticipate better entry points ahead.
equityresearch@dbs.com
1Q16 net profit rose 10.5% - in line. PGOLD reported net
Whats New income of P1.3bn (+10.5% y-o-y) in 1Q17, in line with our
1Q16 net profit up 10.5% y-o-y - in line estimate but trails consensus. Consolidated revenue growth
was slower (+11.2% y-o-y) and tepid sales growth of Puregold
Speed bumps ahead stores (7.7% y-o-y) dragged down the robust performance of
S&R stores (27.6% y-o-y). While gross margins rose 16bps y-o-y,
Maintain HOLD, TP P41.90
translation to earnings was lower on higher operating expense.
Consolidated gross/net profit margin was 16.8%/4.6% in 1Q17.
Price Relative
P
Same-stores-sales growth (SSSG) was robust at 6.1% for the
Relative Index
quarter despite coming from a high base.
52.0 212
192
47.0
172 Speed bumps ahead. S&R is a bright spot, but it is dimming.
42.0 152
Come 2H17, the high-base effect will kick in and the impact of
promotional sales events will likely to lessen. Competition from
37.0 132
112
32.0
92 Landers Superstore and weaker domestic currency should put
27.0
May-13 May-14 May-15 May-16
72
May-17
pressure on gross margins longer. And unless S&R rein in
operating expenses, EBIT margins will likely contract further.
Puregold Price Club (LHS) Relative PCOMP (RHS)
Slower revenue growth for Puregold stores should drag on
Forecasts and Valuation longer as inflation picks up and the impact of new stores on
FY Dec (P m) 2015A 2016A 2017F 2018F revenue lessens.
Revenue 9,717 11,259 12,370 13,532
EBITDA 885 997 1,087 1,189
Valuation:
Pre-tax Profit 710 792 862 945
Net Profit 500 553 603 661 HOLD, TP at P41.90, based on SOTP valuation methodology.
Net Pft (Pre Ex.) 500 553 603 661 This implies PE of 19x FY17F and 18x FY18F earnings.
EPS (P) 1.80 1.99 2.17 2.38
EPS Pre Ex. (P) 1.80 1.99 2.17 2.38 Key Risks to Our View:
EPS Gth (%) 11 10 9 10 Key risks are: 1) intense competition from big modern and
EPS Gth Pre Ex (%) 11 10 9 10
mom-and-pop (relating to Puregold) retail chains; 2) fewer
Diluted EPS (P) 1.80 1.99 2.17 2.38
Net DPS (P) 0.30 0.30 0.30 0.33 number of new store rollouts, hence less pronounced impact on
BV Per Share (P) 13.8 15.5 17.4 19.4 sales growth; and 3) competition from Landers Superstore,
PE (X) 23.9 21.6 19.8 18.1 stronger USD, inventory management, rising opex, and QSR
PE Pre Ex. (X) 23.9 21.6 19.8 18.1 (relating to S&R).
P/Cash Flow (X) 35.9 44.3 24.4 18.3
EV/EBITDA (X) 13.4 12.1 11.0 9.9
At A Glance
Net Div Yield (%) 0.7 0.7 0.7 0.8
P/Book Value (X) 3.1 2.8 2.5 2.2 Issued Capital (m shrs) 2,765
Net Debt/Equity (X) CASH 0.0 0.0 CASH Mkt. Cap (P/US$m) 11,877 / 2,390
ROAE (%) 13.8 13.5 13.2 12.9 Major Shareholders (%)
Earnings Rev (%): - - Cosco Capital Inc 51.0
Consensus EPS (P): 2.3 2.6 Co Lucio Lao 7.6
Other Broker Recs: B: 9 S: 2 H: 1 Co Susan Pe 6.5
Free Float (%) 34.9
Source of all data on this page: Company, DBS Bank, 3m Avg. Daily Val (US$m) 3.5
Bloomberg Finance L.P
ICB Industry : Consumer Services / Food & Drug Retailers
ed: TH / sa: YM / AH Page 88

Company Guide
Puregold Price Club
WHATS NEW Outlook
1Q17 net profit up 10.5% y-o-y Speed bumps ahead. No change in forecast. We are
projecting 9.2%/9.7% net profit growth for FY17F/FY18F. The
1Q17 net profit up 10.5% y-o-y - in line. PGOLD reported slower earnings growth is due to lesser impact of new stores
net income of P1.3bn (+10.5% y-o-y) in 1Q17, in line with our on revenue growth, higher inflation, and competition. While
estimate but trails consensus. Consolidated revenue growth S&R is a bright spot, it is dimming. Come 2H17, the high-base
was slower (+11.2% y-o-y) and tepid sales growth of Puregold effect will kick in and the impact of promotional sales events is
stores (7.7% y-o-y) dragged down the robust performance of likely to lessen. Competition from Landers Superstore and
S&R stores (27.6% y-o-y). While gross margins rose 16bps y-o- weaker domestic currency should put pressure on gross
y, translation to earnings was lower on higher operating margins longer. And unless S&R rein in operating expenses,
expenses. Consolidated gross/net profit margins were EBIT margins will likely contract further. Slower revenue
16.8%/4.6% in 1Q17. Same-stores-sales growth (SSSG) was growth for Puregold stores should drag on longer as inflation
robust at 6.1% for the quarter despite coming from a high picks up and impact of new stores on revenue lessens. Cash
base. conversion cycle (CCC) will continue to deteriorate on rising
inventory levels and management's preference on paying
Devil in the details part deux. While in line with our estimate, suppliers early to avail discounts.
the slower revenue growth for Puregold branded stores is
Valuation
likely to remain sticky this year. Higher inflation and impact of
new store rollouts becoming less pronounced (evident in the HOLD, TP at P41.90, based on SOTP valuation methodology.
solid post-election SSSG of 4.5% in 1Q17) have translated to Our TP implies 19x FY17F PE below its historical mean
slower sales growth of 7.7% y-o-y. Meanwhile, margins have valuation. Aside from the lower earnings projection, we are
ticked up for the segment due to windfall from price increase also factoring in a net debt position for PGOLD in FY17 due to
and as cost-saving measures continue to bear fruit. Puregold deteriorating CCC.
branded stores' 1Q17 net profit came in at P876m or 12.9%
y-o-y growth.
For S&R, the robust sales of 27.6% y-o-y was driven by 13%
SSSG, contribution from new stores, and the promotional sales
event held from March 31-April 2. However, the strong sales
growth did not translate to better profitability as margins were
squeezed. 1Q17 Gross margins contracted by 110bps y-o-y
due to weaker local currency, promotional sales event, and
competition. EBIT and net profit margins contracted further on
higher operating expenses from its aggressive new store
rollout. Net profit came in at P399m and growth was slow at
5.6% y-o-y.
Page 89
Company Guide
Puregold Price Club
Quarterly / Interim Income Statement (P10000000)

FY Dec 1Q2016 4Q2016 1Q2017 % chg yoy % chg qoq
Revenue 2,476 3,385 2,753 11.2 (18.7)

Cost of Goods Sold (2,064) (2,822) (2,291) 11.0 (18.8)
Gross Profit 412 563 462 12.2 (18.0)
Other Oper. (Exp)/Inc (245) (280) (277) 13.0 (1.0)
Operating Profit 167 284 185 11.1 (34.7)
Other Non Opg (Exp)/Inc (0.9) (0.8) (0.7) 18.9 (5.3)
Associates & JV Inc 0.0 (6.8) 0.0 nm -
Net Interest (Exp)/Inc (1.5) (3.1) (2.8) (83.7) 7.4
Exceptional Gain/(Loss) 0.0 0.0 0.0 - -
Pre-tax Profit 164 273 182 10.6 (33.4)
Tax (48.8) (84.7) (54.1) 10.8 (36.2)
Minority Interest 0.0 0.0 0.0 - -
Net Profit 115 188 128 10.5 (32.2)
Net profit bef Except. 115 188 128 10.5 (32.2)
EBITDA 200 310 223 11.7 (28.0)
Margins (%)
Gross Margins 16.6 16.6 16.8
Opg Profit Margins 6.7 8.4 6.7
Net Profit Margins 4.7 5.6 4.6
Source of all data: Company, DBS Bank
Page 90
Company Guide
Puregold Price Club
Net Selling Area sqm

600,000 16%
Earnings Drivers: 14%

500,000
The 5-year organic growth plan, underpinned by favourable 12%
industry backdrop such as the still low penetration rate of 400,000

10%
modern grocery retail at 30% as at end-2016, and household
300,000 8%
disposable income growth at 5.6% CAGR during FY11-16.
6%
Management plans to roll out 25 Puregold and two S&R 200,000
stores every year till 2020. In the next three years, we forecast 4%
100,000
Puregold/S&R stores to grow net selling area (NSA) by 2%
48,000/30,930 sqm or at 3.7%/14.4% 3-year CAGR. Our 0 0%
assumptions take into account smaller-sized stores for FY14 FY15 FY16 FY17F FY18F
S&R. lhs Puregold, lhs y-o-y Growth, rhs
Puregold given that the expansion is focused outside Metro
Manila. M&A activity is a bonus and an upside risk to our Same-Store-Sales Growth
forecast. Management is constantly looking for M&A 8.0% 40.0%
opportunities, aiming to secure at least one acquisition a year 35.0%
6.0%
on average. 30.0%
Slower sales growth for Puregold branded stores. We forecast 4.0% 25.0%
revenues from Puregold branded stores to grow by 7.0%
20.0%
2.0%
(FY16-19F CAGR) and margins to be stable in FY17F/18F. The
15.0%
tepid pace in sales growth takes into account: 1) 0.0%
10.0%
normalisation of same-store metrics as PGOLD was a 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17
5.0%
beneficiary of election-related spending in FY16; 2) impact of -2.0%
0.0%
new store rollouts on revenues to become less pronounced -4.0%
given the slower expansion in NSA; and 3) rising inflation as -5.0%
Puregolds target households are sensitive to inflation given -6.0% -10.0%
their lower household income. On a brighter note, overall Consolidated, lhs Puregold, lhs S&R, rhs
demand for Puregold offerings should remain resilient to

S&R Margins and Php:US$ Trend
changes in consumption patterns borne from
(%) (P)
existing/upcoming regulations (such as selling restrictions on 30.0%
liquor and cigarettes, nationwide smoking ban, etc.) and 25.0% 49.0
income tax reforms (if impact on household disposable 20.0%

47.0
income is positive, we believe grocery retailers will benefit 15.0%
first). 10.0% 45.0

Solid FY17F earnings growth but challenges remain for S&R. 5.0%
We expect S&R to deliver better earnings growth in 2017, 0.0%

43.0
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
underpinned by two membership sales drives this year. Its -5.0%
41.0
single membership sale last year helped S&R produce better -10.0%
earnings results in 2H16. However, challenges remain as -15.0% 39.0
rising competition from Landers Superstore could have an Gross Margin, lhs Operating Margin, lhs Php:US$ Average, rhs
adverse impact on S&Rs revenues and margins. Landers
Superstore directly competes with S&Rs offerings. It opened
two Manila stores in 2016, with two more set to open in
2017 (Alabang and Cebu). Furthermore, weaker peso and
rising operating expenses (as a result of its aggressive
expansion plans) may continue to put pressure on S&Rs
margins longer than so far assumed. Taking these into
account, we still see earnings growth of 7% (FY16-19F CAGR)
for S&R, with net margins expected to decline 70ppts/30ppts
in FY17F/18F.
Page 91
Company Guide
Puregold Price Club

Balance Sheet: 0.25 1.9
Net debt position for the first time since 2010. PGOLD 1.9
0.20
reported a net debt position of P1.0bn in FY16. Cash
1.8
conversion cycle deteriorated to 42 days in FY16 from 32 0.15
days in FY15. According to management, PGOLD is able to 1.8
obtain better supplier discounts by paying early. The 0.10

1.7
company's balance sheet remains unlevered and hence it is 0.05
1.7
able to tap on its short-term bank credit lines at low interest
rates. The company is unlikely to return to a net cash position 0.00
2014A 2015A 2016A 2017F 2018F
1.6
if its cash conversion cycle days continue to lengthen. Gross Debt to Equity (LHS) Asset Turnover (RHS)
Capital Expenditure
Pm
Share Price Drivers: 400.0
350.0
Return to net cash position, if cash conversion cycle improves.
300.0
Unlikely to happen in FY17F given rising inventory levels in 250.0
anticipation of higher prices and managements preference to 200.0
paying suppliers early to obtain discounts. 150.0
Better performance from both Puregold and S&R stores. For 100.0
50.0
PGOLD to trade at higher multiples, earnings growth must
0.0
pick up pace. In order for this to occur, both Puregold and 2014A 2015A 2016A 2017F 2018F
S&R must deliver better performances. The industry backdrop Capital Expenditure (-)
is conducive for growth despite intensifying competition. The ROE (%)

counter is well positioned to benefit first from rising 14.0%
household disposable income and the increasing penetration 12.0%
rate of modern retailing. 10.0%
8.0%
6.0%
Key Risks:
Competition. PGOLD does not only compete with big-chain 4.0%
modern retailers but also with smaller mom-and-pop chains 2.0%
(mainly in provincial areas). Big-chain players have so far been 0.0%

rational competitors; however, mom-and-pop chains offer 2014A 2015A 2016A 2017F 2018F
better value proposition due to less regulatory oversight (i.e. Forward PE Band (x)
flexibility in declaring taxable income). (x)
Expansion constraints. Availability of space, especially in key 31.3
areas, is paramount for PGOLDs expansion plan. Also, big- 29.3

+2sd:28.2x
27.3
chain retail players have aggressive expansion plans, which 25.3
+1sd:24.8x
present challenges to PGOLDs expansion plans. 23.3
Inflation. Puregold stores target households in the lower 21.3 Avg:21.5x
income group, which are sensitive to inflation. 19.3

1sd:18.2x
17.3
S&R concerns. The extent of S&Rs margin contraction hinges 15.3
2sd:14.8x
on the USD strength, the ability to rein in opex, and the 13.3
gravity of the price war on high turnover items. S&Rs May-13 May-14 May-15 May-16 May-17
expansion into the QSR business may negatively impact S&R PB Band (x)
sales, as it may divert traffic and curb impulse purchases. (x)
4.3
+2sd:4.07x
Company Background 3.8
+1sd:3.57x
Puregold Price Club Inc. (PGOLD) operates as a retailer in 3.3
hypermarkets, supermarkets, discount and convenience Avg:3.08x

2.8
stores, and uses the membership shopping format in the 1sd:2.59x
Philippines. The company is the country's second biggest 2.3
2sd:2.1x
grocery retailer. 1.8
Page 92
Company Guide
Puregold Price Club
Key Assumptions
FY Dec 2014A 2015A 2016A 2017F 2018F
Puregold (NSA Growth) 0.09 0.13 0.04 0.04 0.04
S&R (NSA Growth) 0.16 0.16 0.22 0.17 0.14
Segmental Breakdown
FY Dec 2014A 2015A 2016A 2017F 2018F
Revenues (P m)
Puregold 68,921 79,351 90,939 97,181 103,821
S&R 15,770 17,821 21,653 26,515 31,498
Total 84,691 97,172 112,592 123,696 135,320
Operating profit (P m)
Slowing NSA growth due
Puregold 3,877 4,549 5,176 5,533 5,936
to high base
S&R 2,601 2,601 2,921 3,256 3,677
Total 6,478 7,150 8,097 8,789 9,613
Puregold 5.6 5.7 5.7 5.7 5.7
S&R 16.5 14.6 13.5 12.3 11.7
Total 7.6 7.4 7.2 7.1 7.1
Income Statement (P m)
FY Dec 2014A 2015A 2016A 2017F 2018F
Revenue 84,691 97,172 112,589 123,696 135,320
Gross Profit 14,754 16,489 18,538 20,359 22,323
Other Non Opg (Exp)/Inc 27 18 (23) 0 0
Associates & JV Inc (17) (11) (68) (75) (83)
Net Interest (Exp)/Inc (30) (52) (89) (96) (80)
Pre-tax Profit 6,458 7,105 7,917 8,618 9,450 Upper end of
Tax (1,938) (2,103) (2,391) (2,585) (2,835) managements guidance
Minority Interest 0 0 0 0 0 of 8%-10%
Preference Dividend 0 0 0 0 0
Net Profit 4,520 5,002 5,526 6,033 6,615
Net Profit before Except. 4,520 5,002 5,526 6,033 6,615
EBITDA 8,143 8,854 9,973 10,874 11,894
Growth
Revenue Gth (%) 15.7 14.7 15.9 9.9 9.4
EBITDA Gth (%) 18.5 8.7 12.6 9.0 9.4
Opg Profit Gth (%) 18.8 10.4 13.3 8.5 9.4
Margins & Ratio
Gross Margins (%) 17.4 17.0 16.5 16.5 16.5
ROAE (%) 13.9 13.8 13.5 13.2 12.9
ROA (%) 8.8 8.9 8.9 8.9 9.1
ROCE (%) 11.5 11.4 11.1 10.9 11.0
Div Payout Ratio (%) 18.4 16.6 15.0 13.8 13.7
Page 93
Company Guide
Puregold Price Club
Quarterly / Interim Income Statement (P m)

FY Dec 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017
Revenue 24,761 26,296 27,680 33,852 27,534

Gross Profit 4,119 4,167 4,618 5,635 4,623
Other Non Opg (Exp)/Inc (9) 0 (6) (8) (7)
Associates & JV Inc 0 0 0 (68) 0
Net Interest (Exp)/Inc (15) (20) (23) (31) (28)
Pre-tax Profit 1,642 1,583 1,964 2,729 1,816
Tax (488) (470) (585) (847) (541)
Minority Interest 0 0 0 0 0
Net Profit 1,154 1,113 1,378 1,881 1,275
Net profit bef Except. 1,154 1,113 1,378 1,881 1,275
EBITDA 1,999 1,944 2,345 3,101 2,233
Improvement q-o-q driven by
Growth S&R
Revenue Gth (%) (17.0) 6.2 5.3 22.3 (18.7)
EBITDA Gth (%) (31.3) (2.7) 20.6 32.2 (28.0)
Opg Profit Gth (%) (35.2) (3.9) 24.4 42.2 (34.7)
Net Profit Gth (Pre-ex) (%) (35.8) (3.6) 23.9 36.5 (32.2)
Margins
Gross Margins (%) 16.6 15.8 16.7 16.6 16.8
Balance Sheet (P m)
FY Dec 2014A 2015A 2016A 2017F 2018F
Net Fixed Assets 13,132 14,034 15,712 16,643 17,662

Invts in Associates & JVs 0 0 0 0 0
Other LT Assets 20,054 21,796 21,870 21,794 21,711
Cash & ST Invts 6,758 6,246 6,416 6,396 7,906
Inventory 11,167 12,983 16,488 18,670 21,021
Debtors 1,946 2,683 3,881 5,552 6,444
Other Current Assets 610 1,102 1,017 1,017 1,017
Total Assets 53,666 58,844 65,383 70,073 75,763
ST Debt 1,364 3,138 5,018 5,018 5,018

Creditor 10,465 9,778 9,644 8,389 8,870
Other Current Liab 2,007 1,691 1,401 3,143 3,393
LT Debt 2,493 2,395 2,397 1,397 647
Minority Interests 0 0 0 0 0
Total Cap. & Liab. 53,666 58,844 65,383 70,073 75,763
Non-Cash Wkg. Capital 1,251 5,299 10,341 13,707 16,220

Net Cash/(Debt) 2,902 714 (999) (18) 2,241
Asset Turnover (x) 1.6 1.7 1.8 1.8 1.9 Higher cash conversion
Current Ratio (x) 1.5 1.6 1.7 1.9 2.1 cycle days
Quick Ratio (x) 0.6 0.6 0.6 0.7 0.8
Net Debt/Equity (X) CASH CASH 0.0 0.0 CASH
Net Debt/Equity ex MI (X) CASH CASH 0.0 0.0 CASH
Capex to Debt (%) 43.9 45.4 40.0 48.2 59.7
Z-Score (X) 6.2 6.2 5.7 5.5 5.4
Page 94
Company Guide
Puregold Price Club
Cash Flow Statement (P m)

FY Dec 2014A 2015A 2016A 2017F 2018F
Pre-Tax Profit 6,458 7,105 7,917 8,618 9,450

Dep. & Amort. 1,185 1,279 1,409 2,161 2,364
Tax Paid (1,618) (1,992) (2,242) (844) (2,585)
Assoc. & JV Inc/(loss) 17 11 68 75 83
Chg in Wkg.Cap. (2,981) (3,570) (4,911) (5,108) (2,763)
Other Operating CF 410 494 458 0 0
Net Operating CF 3,472 3,327 2,700 4,902 6,548
Capital Exp.(net) (1,692) (2,513) (2,964) (3,092) (3,383)
Other Invts.(net) 131 (88) 0 0 0
Invts in Assoc. & JV 0 0 0 0 0
Div from Assoc & JV 821 921 825 0 0 16.5% payout ratio
Other Investing CF (918) (2,576) (992) 0 0 from last years net
profit
Net Investing CF (1,658) (4,256) (3,131) (3,092) (3,383)
Div Paid (830) (830) (830) (830) (906)
Chg in Gross Debt 480 1,280 1,430 (1,000) (750)
Capital Issues 0 0 0 0 0
Other Financing CF (4) (34) 0 0 0
Net Financing CF (354) 417 600 (1,830) (1,656)
Currency Adjustments 0 0 0 0 0
Chg in Cash 1,460 (512) 169 (20) 1,510
Opg CFPS (P) 2.3 2.5 2.7 3.6 3.3
Free CFPS (P) 0.6 0.3 (0.1) 0.7 1.1
P
50.20 12- mt h
Dat e of Closing
Report Price
48.20 Price
1: 04 J ul 16 42.65 50.00 BUY
46.20 2
2: 11 Aug 16 45.20 50.00 BUY
3: 12 Aug 16 44.10 50.00 BUY
44.20
1 4: 15 Nov 16 40.90 50.00 BUY
3
42.20 4 5: 13 Apr 17 42.20 41.90 HOLD
5
40.20
38.20
36.20
34.20
May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17
Source: DBS Bank

Analyst: Regional Research Team
Page 95
Indonesia Company Guide
Matahari Putra Prima
Version 4 | Bloomberg: MPPA IJ | Reuters: MPPA.JK Refer to important disclosures at the end of this report
DBS Group Research . Equity 12 Jul 2017
FULLY VALUED Cutting the shelf price

Last Traded Price ( 11 Jul 2017): Rp620 (JCI : 5,773.00)
Price Target 12-mth: Rp450 (-27% downside) (Prev Rp1,060) Earnings risk still lingers. MPPA has implemented a new strategy
to capture more market share since the beginning of the year.
Analyst By embarking on price-cutting exercises, the company aims to
Tiesha PUTRI +6221 30034931 tiesha.narandha@id.dbsvickers.com narrow the gap between its and its competitors prices,
Andy SIM CFA +65 6682 3718 andysim@dbs.com specifically regional supermarkets and minimarkets. This
however should put MPPAs earnings under pressure, against
Whats New the backdrop of still-weak household demand and an increase in
Price-cutting strategy should put margin under opex, as the company cleans up its account receivable. We
revise down our FY17/FY18 net profit forecasts by 142%/84% ,
pressure in the near term
based on our lower SSSG and margin assumptions.
Revising down FY17/FY18 net profit forecasts by Where we differ. We expect MPPA to book Rp83bn in net loss
142%/84% in FY17, the lowest among consensus. Consensus forecasts
Maintain Fully Valued with a lower TP of Rp450 MPPA to book net profit of Rp85bn in FY17, which implies that
MPPA would book Rp262bn in net profit in 2Q17-4Q17. We
believe this would be difficult to achieve. Recall that MPPA
booked Rp117bn in net loss in 1Q17, while the first round of
Price Relative price cuts only began at the end of March. We believe the new
pricing strategy will continue to put MPPAs margin under
pressure in the near term.
Potential catalyst. In February, media reported that MPPAs
major shareholders, including Temasek, are planning to sell their
stakes in MPPA in a deal that could value MPPA at USD1bn.
Temasek, through Prime Star Investment, acquired MPPA for
Rp2,050 per share back in 2013 and currently owns a 26.1%
stake in MPPA. Should this stake sale go through at a premium,
FY Dec (Rp m) 2015A 2016A 2017F 2018F MPPAs share price could see some valuation support or rerate
Revenue 13,802 13,527 14,097 15,580 upward.
EBITDA 617 525 365 584
Pre-tax Profit 272 101 (111) 54.0 Valuation:
Net Profit 222 38.0 (83.0) 40.0 We switch our valuation method to three-stage DCF from
Net Pft (Pre Ex.) 222 38.0 (83.0) 40.0 relative PE valuation. We assume 11.4% WACC and 5%
Net Pft Gth (Pre-ex) (%) (60.0) (82.6) nm nm sustainable growth rate in our calculation. Our new TP of
EPS (Rp) 41.2 7.16 (15.4) 7.53 Rp450 implies 9x/6x FY17F/FY18F EV/EBITDA, 40%/59%
EPS Pre Ex. (Rp) 41.2 7.16 (15.4) 7.53 discount to the average multiple of regional grocery retailer.
EPS Gth Pre Ex (%) (60) (83) (316) (149)
Diluted EPS (Rp) 41.2 7.16 (15.4) 7.53
Net DPS (Rp) 26.0 0.0 0.0 0.0 Key Risks to Our View:
BV Per Share (Rp) 467 452 436 444 Better-than-expected profitability on the back of improvement
PE (X) 15.0 86.6 nm 82.4 in operational efficiencies could lead to higher earnings.
PE Pre Ex. (X) 15.0 86.6 nm 82.4
Change in shareholders. MPPAs valuation could be supported
P/Cash Flow (X) nm 5.7 16.6 8.1
EV/EBITDA (X) 5.8 7.3 11.4 7.2 if sale by major shareholders fetches a premium.
Net Div Yield (%) 4.2 0.0 0.0 0.0
P/Book Value (X) 1.3 1.4 1.4 1.4 At A Glance
Net Debt/Equity (X) 0.1 0.2 0.4 0.4 Issued Capital (m shrs) 5,378
ROAE (%) 8.8 1.6 (3.5) 1.7 Mkt. Cap (Rpbn/US$m) 3,334 / 250
Earnings Rev (%): (50) (142) (84) Major Shareholders (%)
Consensus EPS (Rp): N/A 22.2 27.7 Multipolar 50.2
Other Broker Recs: B: 5 S: 10 H: 5 Prime Star Investment Pte. Ltd. 26.1
Source of all data on this page: Company, DBSVI, DBS Bank, Bloomberg Free Float (%) 23.7
Finance L.P 3m Avg. Daily Val (US$m) 0.40
ICB Industry : Consumer Services / General Retailers

ed: JCC / sa:MA, PY
Page 96
Company Guide
WHATS NEW
Price-cutting strategy should put margin under pressure in the near term
Competing through pricing. MPPA has lowered the selling prolonged weak demand and the impact of intensifying
price of several popular items with the aim of increasing its competition to MPPAs SSSG. We have assumed 0%/6%
competitiveness against smaller-scale regional supermarkets SSSG in FY17F/FY18F. We have also lowered our EBIT margin
and minimarkets. Around the Lebaran season, the company as we expect higher opex from AR impairment. We now
cut the selling price of 5,000 items (c. 12% of its total SKUs) forecast MPPA to book a net loss of Rp83bn in FY17 and a
and launched a special promotion called Turun Harga to net profit of Rp40bn in FY18.
boost traffic. During our recent basket price comparison
Maintain Fully Valued with lower TP of Rp450. We have
survey at MPPAs outlets at Bandung Indah Plaza and Yogya
switched our valuation from relative PE valuation to DCF as
Supermarket at Riau Junction, which are only 300 metres
we expect MPPA to still record a net loss in FY17. We use
apart, we found that MPPA has managed to narrow its price
11.4% WACC and 5% sustainable growth rate in our three-
gap over its competitor. Based on our survey, our basket of
stage DCF model. Our TP of Rp450 implies 9x/6x EV/EBITDA
eleven daily need items was priced 1% lower in MPPAs
FY17F/FY18F and 1x PBV FY17F/FY18F.
outlet than that in the Yogya outlet.
Cutting FY17F/FY18F net profit by 142%/84%. We have cut

our revenue forecasts for FY17/FY18 by 7%/6% to factor in
Price comparison survey in Bandung, West Java

Hy permart
No Product Brand Size Hy permart* Yogy a*
v s. Yogy a
1 Instant noodles Indomie Soto Mie flav our 70 gr 2,100 2,025 4%
2 Sugar Priv ate label 1 kg 12,500 12,500 0%
3 Tea Sariwangi 25 pcs 4,250 5,250 -19%
4 Cooking oil Bimoli Spesial 2l 28,400 29,750 -5%
5 Soy sauce Kecap Bango 135 ml 8,400 8,950 -6%
6 Milk powder Dancow F ortigro 400 gr 42,700 41,450 3%
7 Soap bar Lux 85 gr 3,100 2,950 5%
8 Tooth paste Pepsodent 225 gr 9,700 9,300 4%
9 Shampoo Clear 170 ml 19,200 22,300 -14%
10 Detergent Rinso Anti Noda 700 gr 15,900 14,100 13%
11 Liquid dish soap Sunlight 800 ml 14,500 13,750 5%
T ot al 160,750 162,325 - 1%
*As of 29 June 2017
Source: DBSVI, DBS Bank
MPPAs Turun Harga promotion
Page 97
Company Guide
Earnings revision
2017F 2018F
Old Ne w Cha nge Old Ne w Cha nge
Revenue (net) 15,165 14,097 -7% 16,534 15,580 -6%
Gross profit 2,519 2,334 -7% 2,746 2,610 -5%
EBIT 337 (25) -107% 408 154 -62%
EBITDA 739 365 -51% 859 584 -32%
Net Profit 196 (83) -142% 250 40 -84%
Gross margin (%) 16.6 16.6 16.6 16.8

EBIT margin (%) 2.2 (0.2) 2.5 1.0
EBITDA margin (%) 4.9 2.6 5.2 3.7
Net margin (%) 1.3 (0.6) 1.5 0.3
Opex to net revenue (%) (14.4) (16.7) (14.1) (15.8)
DCF assumption
WA CC K ey assumpt ions
Risk-free rate 7.5% T erminal grow t h rat e 5.0%
ERP 5.3%
Beta 1.0 Sales CA GR
Debt/equity 0.4 2017F -2022F 7.9%
Tax rate 25.0% 2022F -2027F 6.1%
Cost of equity 12.8% A v g, EBIT margin
Cost of debt 7.9% 2017F -2022F 0.7%
WA CC 11.4% 2023F -2027F 1.3%
Present v alue A v g, w ork ing c apit al/sales
2017F-2022F 79 2017F -2022F -0.4%
2023F-2027F 645 2023F -2027F -0.3%
Terminal v alue 2,497 A v g, capex/sales
Sum of PV 3,221 2017F -2022F -2.8%
Net cash (debt) (822) 2023F -2027F -1.5%
Equity value 2,399 A v g, deprec iat ion/sales
No. of shares 5,378 2017F -2022F 2.5%
Equit y v alue per share 450 2023F -2027F 2.0%
Peers comparison
Company T ic k er M ark et cap PE EV /EBIT DA Pric e/sales ROE (%) Net DER
(USD mn) 17F 18F 17F 18F 17F 18F 17F end of 17F
Matahari Putra Prima MPPA IJ 251 N/A 83.0 10.7 6.7 0.24 0.22 (3.5) 0.4
Dairy F arm DF I SP 11,117 22.9 21.2 14.2 13.2 0.95 0.90 30.2 0.1
Sheng Siong Group SSG SP 1,481 20.6 19.4 16.2 15.4 1.84 1.79 26.9 Net cash
Big C Supercenter* BIGC TB 5,395 24.2 22.0 14.0 12.9 1.69 1.55 13.8 N/A
Siam Makro* MAKRO TB 5,032 27.5 24.2 17.5 15.5 0.91 0.83 37.1 N/A
Puregold Price Club PGOLD PM 2,519 21.3 19.4 12.3 11.2 1.03 0.95 13.2 Net cash
Robinson Retail RRHI PM 2,400 21.8 19.6 13.5 12.0 1.03 0.93 11.2 Net cash
A v erage 23.0 20.9 14.6 13.4 1.24 1.16 22.1
*As of 10 July 2017

Page 98
Company Guide
Sales per sqm (Rp mn)

Critical Factors
Store productivity. We think that competition among
hypermarket operators in the Greater Jakarta area has been
intensifying, with operators revamping stores and pushing
promotions to boost demand. The growing number of
convenience stores also adds to the competitive pressure. We
think this could potentially impede the companys revenue
growth going forward, as growth in sales productivity per sqm
has become harder to achieve (as evident in the last three Retail space (sqm)
years). We estimate revenue to grow at a CAGR of 7% over
FY16-18F, driven mostly by new store openings.
Economic recovery in ex-Java cities. MPPA is looking to further

strengthen its foothold in underpenetrated ex-Java cities. As at
end of Sep 2016, 144 stores, or 49% of MPPAs total stores,
are located outside Java. The performance of MPPAs ex-Java
stores, particularly in Sumatera and Kalimantan, was weak in
2016. Given the high dependency of the ex-Java economy on
commodity prices, the recent rally in commodity prices may help
support consumers purchasing power, hence leading to better Sales breakdown by geography
performance by MPPAs ex-Java stores. 100%
90%
Significant contribution from marketing income. MPPA has a 80% 40.5% 41.2%
negative marketing expense item booked under its operating 70%
expenses. This is essentially marketing income which is earned 60%
from advertising fees (through brochures and pamphlets) as 50%

27.7% 27.0%
well as supplier rebates and discounts. We note that marketing 40%
30%
incomes contribution to operating income has been increasing,
20%
i.e. 51% in 2013 to 333% in 2016. We view this increasing 31.9% 31.8%
10%
dependency negatively as it reduces earnings visibility and
0%
presents risks. In FY16, marketing income accounts for 4.2% of FY16 1Q17
MPPAs gross sales. Furthermore, part of it is uncollectible, Greater Jakarta Java Ex-Java
causing MPPA to book an account receivable impairment
amounting to Rp90bn in 1Q17. We assume an impairment of Margin trend and forecasts
Ro180bn for FY17 or 1.2% of gross sales. Our sensitivity %
analysis shows that a 10bps move in AR impairment/gross sales 20
18 17.3 17.0 16.8
would impact MPPAs bottom line by 13%. 16.4 16.6
16
14
12
10
8
6 5.2
4.1
4 2.2 1.6
2 1.3 1.0
0.3 -0.2 0.3
0
-2 14A 15A 16A 17F -0.6 18F
Gross margin EBIT margin Net margin
Source: Company, DBSVI, DBS Bank
Page 99
Company Guide
Appendix 1: A look at the company's historical performance what drives its share price?
MPPA share price vs. peers

Oct 6, 2010 = 100
MPPA (LHS) MPPA vs. Consumer Sector (RHS)
5,000 1.40
4,500
1.20
4,000 A2
3,500 1.00
3,000
0.80
2,500 B
0.60
2,000 A1
1,500 0.40
1,000
0.20
500
0 -
Oct-10 May-11 Dec-11 Jul-12 Feb-13 Sep-13 Apr-14 Nov-14 Jun-15 Jan-16 Aug-16 Mar-17
Source: Bloomberg Finance L.P, DBSVI, DBS Bank
A: Store productivity MPPAs share price vs. EBIT margin

MPPAs shares move in line with its store productivity. This is 5,000 10.0
evident in 2010-2011 and 2015-2016, when the decline in 4,500 8.0
store productivity caused the shares to fall in 2010-2011 and 4,000 6.0
2015-2016. An increase in productivity, driven by prudent new 3,500
4.0
3,000
store openings or market share gain, led to a share price rally, 2.0
2,500
as shown in 2014. 0.0
2,000
-2.0
1,500
MPPAs share price vs. store productivity 1,000 -4.0
5,000 20.0 500 -6.0

4,500 - -8.0
19.5 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16
4,000
3,500 MPPA share price (LHS) EBIT margin, % (RHS)
19.0
3,000
2,500 18.5
2,000
18.0
1,500
1,000
17.5
500
- 17.0
Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16
MPPA share price (LHS) Sales/sqm, Rp mn (RHS)
B: Profitability
We have also seen a growing correlation between MPPAs share
price and its profitability since 2015. The subsequent chart
shows that MPPA saw its share price derating in 2015 to 1Q17
as intensifying competition and operating deleverage crimped
its EBIT margin.
Page 100
Company Guide

Balance Sheet:
Asset-light business model. MPPA has an asset-light business
model as it does not own its establishments, but lease them
from either affiliated or third parties. As at end of March 2017,
MPPAs net gearing was 0.24x. We expect its net gearing ratio
to rise to 0.35x as the company expands its store network and
make further investments in MatahariMall.com.

Recovery in consumer spending. Any signs of recovery in the
domestic economy or consumer spending (i.e. reflected in a
Capital Expenditure
strong Consumer Confidence Index) will fuel expectations of Rpbn
stronger revenue and earnings growth. This would lead to more

positive investor sentiment towards MPPA, thus boosting its
share price.
Key Risks:
Weakness in domestic consumption. Lower consumer
spending would naturally reduce the companys revenue .
Furthermore, consumers tend to hold off purchases of durable
goods, such as electronics, gadgets, and household
equipment, which typically carry higher margins. This could ROE (%)
lead to margin contraction for MPPA.
Delay in real estate development. MPPA relies on third-party

real estate developers for new store sites. A weak economy
and an uncertain interest-rate environment could cause
developers to hold off their developments, which would
negatively impact MPPAs store expansion plan and its growth.
Competition from foreign players. Given Indonesias attractive

growth potential and consumer demographics, foreign players
have sought opportunities to establish a presence here. Korean Forward EV/EBITDA Band (x)
retailer Lotte Group has set up its department store and 45.0
grocery retailer Lotte Mart in Indonesia. In 2016, the Abu 40.0
Dhabi-based Lulu Group opened a hypermarket in Java that 35.0

+2sd
sells only halal products to differentiate itself. The company 30.0
25.0 +1sd
plans to open nine more hypermarkets in 2017. These
20.0
incoming competitors could erode MPPAs market share and Avg.
15.0
profitability going forward. 10.0 -1sd
5.0
-2sd
Company Background 0.0
Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17
Matahari Putra Prima is a mass grocery retail store operator in
Indonesia. Its store formats include hypermarkets under the PB Band (x)
name Hypermart, supermarkets under Foodmart, as well 12.0
as health and beauty stores under Boston Health & Beauty.
10.0
More than 90% of the companys revenue is derived from its
+2sd
hypermarket stores, and currently, it is the second largest 8.0
hypermarket store operator in Indonesia, with over 30% 6.0

+1sd
market share in terms of retail value. Avg.

4.0
-1sd
2.0
-2sd
0.0
Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17
Page 101
Company Guide
Key Assumptions
FY Dec 2014A 2015A 2016A 2017F 2018F
Sales per sqm (Rp mn) 20.0 20.0 18.0 18.0 19.0
Retail space (sqm) 698,763 734,862 767,807 800,258 834,360
Segmental Breakdown
FY Dec 2014A 2015A 2016A 2017F 2018F
Gross Revenues (Rpbn)
Direct sales 13,497 13,713 13,436 14,004 15,476
Consignment sales 791 711 661 689 762
Total 14,288 14,425 14,097 14,693 16,238
Gross Profit (Rpbn)
Direct sales 2,261 2,180 2,202 2,241 2,507
Consignment sales 94.0 89.0 92.0 94.0 104
Total 2,354 2,269 2,294 2,334 2,610
Gross Margins (%)
Direct sales 16.8 15.9 16.4 16.0 16.2
Consignment sales 11.8 12.5 13.8 13.6 13.6
Total 16.5 15.7 16.3 15.9 16.1
Income Statement (Rpbn)

FY Dec 2014A 2015A 2016A 2017F 2018F
Revenue 13,590 13,802 13,527 14,097 15,580
Gross Profit 2,354 2,269 2,294 2,334 2,610
Operating Profit 712 307 177 (25.0) 154
Net Interest (Exp)/Inc 19.0 (36.0) (76.0) (85.0) (100.0)
Pre-tax Profit 731 272 101 (111) 54.0
Tax (177) (50.0) (63.0) 28.0 (13.0)
Net Profit 554 222 38.0 (83.0) 40.0
Net Profit before Except. 554 222 38.0 (83.0) 40.0
EBITDA 975 617 525 365 584
Growth
Revenue Gth (%) 14.1 1.6 (2.0) 4.2 10.5
EBITDA Gth (%) 23.5 (36.8) (14.9) (30.4) 59.9
Opg Profit Gth (%) 20.9 (56.8) (42.4) (114.2) (710.2)
Net Profit Gth (Pre-ex) (%) 24.5 (60.0) (82.6) nm nm
Margins & Ratio Margin to gross sales.
Gross Margins (%) 16.5 15.7 16.3 15.9 16.1
Opg Profit Margin (%) 5.0 2.1 1.3 (0.2) 0.9
Net Profit Margin (%) 3.9 1.5 0.3 (0.6) 0.2
ROAE (%) 21.9 8.8 1.6 (3.5) 1.7
ROA (%) 10.0 3.7 0.6 (1.3) 0.6
ROCE (%) 19.4 7.2 1.9 (0.7) 3.1
Div Payout Ratio (%) 41.7 63.1 0.0 N/A 0.0
Net Interest Cover (x) NM 8.6 2.3 (0.3) 1.5
Page 102
Company Guide
Quarterly / Interim Income Statement (Rpbn)

FY Dec 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017
Revenue (net) 3,265 3,736 3,393 3,133 3,101

Gross Profit 459 673 558 604 433
Other Oper. (Exp)/Inc (569) (560) (470) (518) (651)
Operating Profit (110) 112 89.0 86.0 (218)
Pre-tax Profit (126) 94.0 68.0 65.0 (238)
Tax 3.00 8.00 (15.0) (59.0) 61.0
Net Profit (123) 102 53.0 6.00 (177)
Net profit bef Except. (123) 102 53.0 6.00 (177)
EBITDA (26.0) 194 177 180 (128)
The company booked
Growth loss in 1Q17.
Revenue Gth (%) (2.7) 14.4 (9.2) (7.6) (1.0)
EBITDA Gth (%) nm nm (8.8) 1.8 nm
Opg Profit Gth (%) 504.9 (202.3) (21.0) (3.4) (353.7)
Net Profit Gth (Pre-ex) (%) 414.3 (183.1) (47.9) (88.9) (3,087.7)
Margins (to net revenue)
Gross Margins (%) 14.1 18.0 16.5 19.3 14.0
Opg Profit Margins (%) (3.4) 3.0 2.6 2.7 (7.0)
Net Profit Margins (%) (3.8) 2.7 1.6 0.2 (5.7)
Balance Sheet (Rpbn)

FY Dec 2014A 2015A 2016A 2017F 2018F
Net Fixed Assets 1,273 1,462 1,576 1,585 1,591

Other LT Assets 657 861 1,024 1,145 1,145
Cash & ST Invts 748 409 249 128 143
Inventory 2,355 2,498 2,747 2,682 2,957
Debtors 31.0 26.0 47.0 38.0 42.0
Other Current Assets 470 777 1,060 1,060 1,060
Total Assets 5,534 6,033 6,702 6,638 6,937
ST Debt 0.0 250 140 140 180

Creditor 1,893 1,763 2,318 2,137 2,356
Other Current Liab 859 801 876 876 876
LT Debt 0.0 400 610 810 810
Other LT Liabilities 253 304 328 328 328
Total Cap. & Liab. 5,534 6,033 6,702 6,638 6,937
Non-Cash Wkg. Capital 104 736 660 766 826

Net Cash/(Debt) 748 (241) (501) (822) (847)
Asset Turnover (x) 2.2 2.4 2.1 2.1 2.3
Current Ratio (x) 1.3 1.3 1.2 1.2 1.2
Quick Ratio (x) 0.3 0.2 0.1 0.1 0.1
Net Debt/Equity (X) CASH 0.1 0.2 0.4 0.4
Net Debt/Equity ex MI (X) CASH 0.1 0.2 0.4 0.4
Capex to Debt (%) N/A 65.0 53.2 42.1 44.1
Z-Score (X) 4.4 3.8 3.6 3.7 3.9
Page 103
Company Guide
Cash Flow Statement (Rpbn)

FY Dec 2014A 2015A 2016A 2017F 2018F
Pre-Tax Profit 731 272 101 (111) 54.0

Dep. & Amort. 264 309 347 390 430
Tax Paid (177) (50.0) (63.0) 28.0 (13.0)
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0
Chg in Wkg.Cap. (255) (559) 104 (107) (60.0)
Other Operating CF (73.0) (114) 92.0 0.0 0.0 We have factored in
Net Operating CF 490 (141) 583 201 411 Rp120bn investment
Capital Exp.(net) (407) (422) (399) (400) (436) in MatahariMall.com
Other Invts.(net) 63.0 (32.0) (158) (121) 0.0 in FY17.
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0
Other Investing CF 474 (129) (71.0) 0.0 0.0
Net Investing CF 130 (583) (628) (521) (436)
Div Paid (1,000) (231) (140) 0.0 0.0
Chg in Gross Debt 0.0 650 100 200 40.0
Capital Issues 0.0 0.0 0.0 0.0 0.0
Other Financing CF (175) (33.0) (75.0) 0.0 0.0
Net Financing CF (1,176) 385 (115) 200 40.0
Currency Adjustments 0.0 0.0 0.0 0.0 0.0
Chg in Cash (555) (339) (160) (120) 15.0
Opg CFPS (Rp) 139 77.6 88.9 57.2 87.5
Free CFPS (Rp) 15.5 (105) 34.2 (37.0) (4.7)

Analyst: Tiesha PUTRI
Andy SIM CFA
Page 104
SMC Research
Regional Equity Explorer

7-Eleven Malaysia Holdings
Bloomberg: SEM MK | Reuters: SEVE.KL Refer to important disclosures at the end of this report
DBS Group Research . Equity 3 Apr 2017
NOT RATED RM1.60

RM1.60 KLCI : 1,740.09 Conveniently priced
Closing price as of 31 Mar 2017
Return *: 1 Largest domestic convenience store operator
Risk: Moderate
Potential Target 12-mth* : 12-Month RM 1.58 (-2% Aggressive store expansion and refurbishment to
12-mth*
downside) support 3-year earnings CAGR of 5.8%
Analyst
Regional Research Team; equityresearch@dbs.com Growth prospects have been largely priced in; Fair
value at RM1.58
The Business
Malaysia.. 7-Eleven (M) is the sole
Dominant convenience store player in Malaysia
operator of 7-Eleven convenience stores within Malaysia and a licensee
Price Relative
RM Relative Index
for Brunei. The group has a commanding share of about 82% market
2.1 share in the standalone convenience store segment. The group has
2.0 206
1.9 2,122 stores as at 31 Dec 2016 across all states in Malaysia.
186
1.8
1.7 166
1.6
146
Acceleration of new stores rollout and stores refurbishment.
refurbishment. Apart from
1.5
1.4 126 improving its infrastructure (IT & supply chain) and offers better product
1.3
1.2
106 mix to drive its earnings, the group has been in aggressive expansion
1.1
May-14 Nov-14 May-15 Nov-15 May-16 Nov-16
86 mode as it believes that the Malaysian market is still under penetrated.
In the last three years, it has managed to open 591 new stores and
7-Eleven Malaysia Holdings (LHS) Relative KLCI (RHS)
Forecasts and Valuation refurbished existing 600 stores or an average 200 stores p.a. This was in
FY Dec (RMm
RMm) 2016A
2016A 2017F
2017F 2018F
2018F 2019F
2019F line with its guided strategy by management when it was relisted back
Revenue 2,103 2,309 2,542 2,804 in 2014. As a result, its topline growth remains resilient despite the
EBITDA 131 146 170 188 challenging operating environment. We estimate that the group will
Pre-tax Profit 70.8 83.0 96.4 108 continue its expansion plan by opening an average of 200 new stores
Net Profit 52.2 61.2 71.1 79.8 per annum between 2017 and 2019.
Net Pft (Pre Ex.) 58.0 61.2 71.1 79.8
EPS (sen) 4.70 5.51 6.40 7.19
EPS Pre Ex. (sen) 5.22 5.51 6.40 7.19 Fair value at RM1.
RM1.58
1.58.
58. 7-Eleven (M) is currently trading at an FY17 PE of
EPS Gth (%) 4 17 16 12 29x, which is in line with its regional peers. Although the group offers
EPS Gth Pre Ex (%) 8 5 16 12 one of the best exposures to a potential consumption recovery story
Diluted EPS (sen) 4.70 5.51 6.40 7.19 with an aggressive new store expansion plan supporting topline growth,
Net DPS (sen) 4.70 4.41 5.12 5.75 we are concerned that high operating expenses arising from new store
BV Per Share (sen) 3.17 4.27 5.55 6.98 expansion could weigh on its earnings. Furthermore, a slow recovery in
PE (X) 34.1 29.2 25.0 22.3
consumer sentiments could cap its near term earnings growth. Our fair
PE Pre Ex. (X) 30.6 29.2 25.0 22.3
P/Cash Flow (X) 23.6 13.1 11.9 10.7 value for 7-Eleven (M) stands at RM1.58, based on 29x PE, which is in
EV/EBITDA (X) 14.1 12.5 10.7 9.5 line with its regional peers average PE.
Net Div Yield (%) 2.9 2.8 3.2 3.6
P/Book Value (X) 50.5 37.5 28.8 22.9 At A Glance
Net Debt/Equity (X) 1.8 1.1 0.6 0.1 Issued Capital (m shrs) 1,111
ROAE (%) 50.8 148.2 130.4 114.7 Mkt. Cap (RMm/US$m) 1,778 / 402
Consensus EPS (sen):: 5.50 6.40 N/A Berjaya Retail Berhad 48.5
Other Broker Recs: B: 1 S: 3 H: 2 Isotrema Sdn Bhd 7.5
Genesis Asset Managers LLP 6.0
ICB Industry : Consumer Services
ICB Sector: Food & Drug Retailers Free Float (%) 49.8
Principal Business: 7-Eleven (M) is the sole operator of 7-Eleven 3m Avg. Daily Val (US$m) 0.27
convenience stores within Malaysia and the licensee for Brunei. The
group is a dominant convenience store player in Malaysia, having
about 82% market share in the standalone convenience store
segment.
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
*This Equity Explorer report represents a preliminary assessment of the subject company, and does not represent initiation into DBSVs coverage
universe. As such DBSV does not commit to regular updates on an ongoing basis. The rating system is distinct from stocks in our regular coverage
universe and is explained further on the back page of this report.
ed: CK / sa: BC, PY
Page 105
REVENUE DRIVERS
Chart 1: 5year Revenue and GP Margin
The leading convenience store player in Malaysia
Malaysia.. The group is a
dominant convenience store player in Malaysia with ~82% market RMm %
32.0
share in the standalone convenience store segment. The group has
2,000.0
31.0
2,122 stores as at 31 Dec 2016, serving ~900,000 people per day.
30.0
The sheer size of its operations has provided the group with high 1,500.0
29.0
economies of scale and strong bargaining position in sourcing its 28.0
1,000.0
products, which serve as strong competitive edge compared to the 27.0
smaller players. 500.0 26.0
25.0
Aggressive store expansions to drive earnings. With RM250m 0.0 24.0

2012 2013 2014 2015 2016
proceeds raised from the IPO in 2014, 74% were used to support
Revenue (LHS) GP Margin (RHS)
capex. Management targets to open 600 new stores from 2014-
2016. As of end-December 2016, the group managed to open 591 Source: Company, DBS Bank
new stores, which is not far off from its target. We estimate that the
group will continue to open an average of 200 new stores per Chart 2: No. of Stores and New Store Openings
annum from 2017-2019. We understand the group is trying to get 2500 210
2122
into areas that have high traffic flow such as MRT and LRT stations. 1944 205
2000 1745 204
Store refurbishments to increase footfall.
footfall From 2014 to 2016, 7- 199
200
1500
Eleven (M) had successfully refurbished 600 of its existing stores. The 195
renovation works include flooring, lighting & store panelling and 1000
190
cost between RM100k and RM150k per store. To attract consumer 188
500 185
footfall and diversify its product offerings, the group has been
converting some stores to caf cum stores type next generation 0 180
2014 2015 2016
stores (Next Gen) and quick win food service stores (QWFS) since
2014. Among others, these new type of stores will 1) provide a Number of stores New stores opening
wider selection of fresh food, beverage and non-food products, (2) Source: Company, DBS Bank
seating area, and (3) free Wi-Fi. In 2016, the group had renovated
202 stores, converted 35 stores to Next Gen and 124 stores to Table 1: Next Gen and QWFS stores
QWFS. We expect the group to continue to refurbish 200 stores, Next Gen QWFS
QWFS
convert 50 stores to Next Gen and 100 stores to QWFS per year A store with a complete food Moderate food service
going forward. service infrastructure: infrastructure:
Hot Beverages Hot Beverages
Expanding
Expanding high margin products. Tobacco sales typically constitute Cold Beverages Cold Beverages
the largest component of the groups revenue and yet have low Mash Potato Machine Mash Potato Machine
profit margins. As such, management is focusing on achieving a Open Cold Case Fresh Bakery Display
better product mix and expanding its high-margin product Fresh Bakery Display Up Right Chiller Fresh to
categories such as food and beverages, non-food like Health & Roller Grill Go
Beauty Aid (HABA), to cushion the impact of rising costs such as Noodle Station Triple Sink with Hot
minimum wage increase. The strategies 7-11 (M) are currently Speed Oven Water
pursing include continuing to introduce more new store keeping Triple Sink with Hot Food Captain
units (SKU) and expanding in-house products (Slurpee, Big Gulp and Water Seating area
Coffee). In FY2016, 7-11 (M) had introduced 455 new SKUs. By Food Captain Free WIFI
focusing on higher value product offerings, we believe this will Seating area
definitely help the group to improve its profit margin as well as Free Wi-Fi
provide the flexibility for the group to make necessary price
adjustments. Sales from HABA in FY2016 was supported by strong Source: Company
c.11% growth in confectionary sales while non-alcoholic beverages
and snack grew 3-5% excluding GST. The growth has helped the
group to sustain its margin c.31%.
Page 106
GROWTH PROSPECTS
Chart 3: MIER Consumer Sentiment Index and Private
Good proxy to possible pick
pick-up in consumer recovery.
recovery. FY16 results Consumption Growth
were impacted by weak consumer spending, which saw its same Private consumption growth (lhs)
sa % q-o-q
stores same growth (SSSG) contracted by 2.2% in 4Q16 and 1.5% Consumer sentiments index (rhs)
3.5 130
for the whole of FY16 (excluding GST). However, thanks to its
3.0 120
aggressive expansion plan, its overall FY16 sales actually increased
2.5 110
4.8% vs ~3.0% for the total FMCG market, largely supported by 2.0
100
contribution from new stores. Going forward, we understand that 1.5
90
the group is looking to revise selling prices to protect its margin. 1.0
80
Nevertheless, we think price revisions could be minimal at this 0.5
0.0 70
juncture due to an on-going challenging operating environment and
-0.5 60
subdued consumer spending recovery. However, should there be a
-1.0 50
pick-up in consumer sentiment; we believe that the group should
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
offer good exposure to a consumption recovery story in Malaysia
given (1) its vast network, and (2) its high operating leverage from
Source: Department of Statistics, MIER
selling price revision.
Table 2: The 12 categories of store locations

Optimising merchandise mix and creative promotional strategies. 7-
Eleven (M) has adopted a centralised strategy where merchandise Shopping Mall Urban Suburb
mix of each convenience store is dependent on its operating
Hospital Hotel College
environment for which management has broadly classified under 12
Tourist Transportation Industrial
categories including colleges, commercial, shopping mall, tourist,
hotel, and hospital areas. Management believes that such a strategy Kiosk Petrol Station CBD
will help to optimise its merchandise mix and improve its sales per
store. The group has also come out with new innovative and unique Source: Company
promotions activities such as monthly promotions, mix-and match
promotions, and redemption promotions to increase sales per store.
Chart 4: Sept-Nov 2016 Promotion
Furthermore, it has kept customers abreast with the latest
promotions or new products via social media and rewarding regular
customers with loyalty cards.
Better infrastructure.
infrastructure 7-Eleven (M) has successfully implemented the
Integrated Retail Information System (IRIS) system in April 2016 and
it is currently in the stability phase to ensure better control in
reporting and analytical processes. The group has also further
enhanced its supply chain model to optimise its inventory
management. This has resulted in its fulfilment level to stores
remaining high at ~90-94%.
Source: Company
Page 107
MANAGEMENT & STRATEGY Competitive environment. Despite being the largest convenience
Strong management team led by an F&B veteran. The key store operator in Malaysia, it still faces stiff competition from other
management of the group has many years of working experience in convenience stores such as KK Supermart, Circle K and Bison. To a
their respective fields and is led by CEO Mr Gary Thomas Brown, certain extent, it also competes with petro marts, mini markets or
who has vast experience in the F&B, household products retailing, even supermarkets since we think that some of product offerings
manufacturing and wholesaling industries, having worked in are quite similar and the location of these stores are quite close to
reputable companies such as Sara Lee Group, Dairy Farm, Pos Ad each other, especially in the Central Business District (CBD), urban
Group.
and suburban areas.
RISK FACTORS
Renewal of regulatory licenses. 7-Eleven (M)s operations require a
Higher-
Higher-than-
than-expected store operating expenses.
expenses Total FY16 number of licences. The key one being the Area License Agreement
expenses (store and general & administration) rose 6.0% y-o-y and (ALA) between the group with 7-Eleven USA, which allows 7-Eleven
store operating expenses were impacted by various cost increases (M) to operate and grant sub-franchises 7-Eleven convenience stores
due to new store expansion and depreciation. They were also in Malaysia and Brunei. This ALA expires in 30 Nov 2033 and is
significantly impacted by minimum wage increase of 10% from 1 renewable for an additional 10 years, subject to material compliance
July 2016. We expect the overall expenses to increase in tandem with the terms therein. Nonetheless, 7-Eleven Inc reserves the right
with its expansion plan and store refurbishment but larger-than- to reject or even revoke the ALA before its expiration.
expected costs increase could erode its profit and affect its business
strategy.
Execution risks. Any hiccup in implementing of its multi-pronged

corporate strategies to drive its earnings growth could cap its
growth prospects, especially for its store expansion plan whether
there is a delay or new stores not located in commercially viable
locations.
Table 3: Key Management Team
Name of Designation Profile

Gary Thomas Brown Appointed as a CEO and executive director in Aug 2014, he has
CEO more than 30 years working experience in F&B and consumer
related industry, attaching to multinational companies such as Dairy
Farm Group and Sara Lee Group.
Ho Meng An accountant by training, he has more than 35 years of working
Deputy CEO experience in various industries, including over 8 years in external
and internal auditing. Prior to joining 7-11(M) He was CFO of Digi
Telecommunications till 2005 and CEO of U Television Sdn Bhd
between 2005 and 2010.
Lim Heng Seong He has more than 20 years working experience in finance,
accounting and auditing covering a variety of industries including
CFO
retail, trading, manufacturing, IT consulting services,
telecommunications and public accounting practice. Prior to this
appointment, he was the Finance Director, a member of the Board
of Directors and the Company Secretary of the largest consumer
electronics and furniture retailer in Malaysia for the past 4 years.
Chua Seok Theng Prior to this appointment, she worked as CIO for Maxis Bhd. She
Chief Information Officer has more than 30 years working experience in the IT industry.
Zulhikam b Ahmad He used worked as a store director at Carrefour Malaysia He has
more than 10 years working experience in the retail related
GM, (Sales and operations)
industry.
Source: Company
Page 108
Sensitivity Analysis
Key Assumptions 2017
FY Dec 2014A
2014A 2015A
2015A 2016A
2016A 2017F
2017F 2018F
2018F 2019F
2019F
GP margin +/- 1% Net Profit +/-
Net additions of stores 188 199 204 200 200 200 30%
Sales per store (RM,m) 1.08 1.03 0.99 0.99 1.00 1.03
Gross margin (%) 29 31 0.31 0.31 0.31 0.31
Dividend payout ratio 100 0.99 1.00 0.80 0.80 0.80
Net capex (RM m) 71.4 115 65.7 75.0 75.0 75.0
Income Statement (RMm)

FY Dec 2014A
2014A 2015A
2015A 2016A
2016A 2017F
2017F 2018F
2018F 2019F
2019F
Revenue 1,893 2,006 2,103 2,309 2,542 2,804

Cost of Goods Sold (1,335) (1,388) (1,457) (1,594) (1,754) (1,935)
Gross Profit 558 618 647 716 788 869
Other Opng (Exp)/Inc (468) (542) (569) (630) (685) (754)
Operating Profit 90.5 76.6 77.4 85.5 103 115
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 0.0 Higher contribution
Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 0.0 from high-margin
Net Interest (Exp)/Inc 2.08 5.00 (0.8) (2.4) (6.8) (6.7) products
Exceptional Gain/(Loss) (3.3) (3.8) (5.8) 0.0 0.0 0.0
Pre-
Pre-tax Profit 89.3 77.8 70.8 83.0 96.4 108
Tax (26.2) (22.0) (18.6) (21.9) (25.4) (28.5)
Minority Interest 0.0 0.0 0.0 0.0 0.0 0.0
Preference Dividend 0.0 0.0 0.0 0.0 0.0 0.0
Net Profit 63.1 55.8 52.2 61.2 71.1 79.8
Net Profit before Except. 66.3 59.6 58.0 61.2 71.1 79.8
EBITDA 129 125 131 146 170 188
Growth
Revenue Gth (%) 13.2 6.0 4.8 9.8 10.1 10.3 Margins Trend
EBITDA Gth (%) 42.4 (3.0) 4.5 11.9 16.2 10.8
5.0%
Opg Profit Gth (%) 54.6 (15.4) 1.1 10.4 20.8 11.4
Net Profit Gth (Pre-ex) (%) 51.4 (10.2) (2.7) 5.5 16.2 12.3 4.5%
Margins & Ratio
4.0%
Gross Margins (%) 29.5 30.8 30.7 31.0 31.0 31.0
Opg Profit Margin (%) 4.8 3.8 3.7 3.7 4.1 4.1 3.5%
Net Profit Margin (%) 3.3 2.8 2.5 2.6 2.8 2.8
3.0%
ROAE (%) 76.2 27.5 50.8 148.2 130.4 114.7
ROA (%) 10.3 7.5 6.9 7.7 8.5 8.9 2.5%
ROCE (%) 42.0 29.1 31.7 32.7 33.3 35.2
2.0%
Div Payout Ratio (%) 99.7 99.5 100.1 80.0 80.0 80.0 2015A 2016A 2017F 2018F 2019F
Net Interest Cover (x) NM NM 95.6 35.0 15.2 17.3
Operating Margin % Net Income Margin %
Page 109
Quarterly / Interim Income Statement (RMm) Revenue Trend

560 10%
FY Dec 3Q2015
3Q2015 4Q2015
4Q2015 1Q2016
1Q2016 2Q2016
2Q2016 3Q2016
3Q2016 4Q2016
4Q2016
8%
540
Revenue 519 500 526 506 548 524 520

6%
Cost of Goods Sold (359) (342) (366) (349) (379) (363) 4%
Gross Profit 160 158 160 157 169 161 500 2%
Other Oper. (Exp)/Inc (139) (137) (138) (134) (151) (146) 480
0%
Operating Profit 21.4 20.5 22.5 22.7 17.6 14.6 -2%
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 0.0 460
-4%
Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 0.0 440 -6%
3Q2014
4Q2014
1Q2015
2Q2015
3Q2015
4Q2015
1Q2016
2Q2016
3Q2016
4Q2016
Net Interest (Exp)/Inc 1.24 1.06 0.59 (0.4) (0.3) (0.8)
Exceptional Gain/(Loss) 0.0 (1.8) (0.8) (1.4) (1.8) (1.8)
Pre-
Pre-tax Profit 22.6 19.8 22.3 21.0 15.5 12.0 Revenue Revenue Growth % (QoQ)
Tax (5.8) (5.9) (6.4) (5.9) (3.9) (2.5)

Net Profit 16.8 13.9 15.9 15.1 11.7 9.52
Net profit bef Except. 16.8 15.7 16.7 16.5 13.5 11.3
EBITDA 32.4 34.9 34.4 36.1 31.1 28.9
Growth
Revenue Gth (%) 7.6 (3.8) 5.3 (3.9) 8.3 (4.4) Impacted by minimum wage
EBITDA Gth (%) 18.8 8.0 (1.5) 4.9 (13.8) (7.2)
Opg Profit Gth (%) 46.1 (3.8) 9.6 0.9 (22.6) (16.7)
Net Profit Gth (%) 56.4 (17.3) 14.6 (5.4) (22.7) (18.3)
Margins
Gross Margins (%) 30.8 31.6 30.4 31.0 30.9 30.7
Opg Profit Margins (%) 4.1 4.1 4.3 4.5 3.2 2.8
Net Profit Margins (%) 3.2 2.8 3.0 3.0 2.1 1.8

Balance Sheet (RMm) Asset Breakdown (2017)
FY Dec 2014A
2014A 2015A
2015A 2016A
2016A 2017F
2017F 2018F
2018F 2019F
2019F
Net Fixed Assets 242 304 319 336 346 351

Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 0.0
Other LT Assets 11.7 21.5 36.0 33.7 31.4 29.1
Cash & ST Invts 244 126 51.7 63.1 81.0 109
Inventory 149 181 264 243 268 296
Debtors 85.5 106 92.5 114 125 138
Other Current Assets 2.42 5.61 13.3 13.3 13.3 13.3
Total Assets 735 744 777 803 865 936
ST Debt 5.36 1.95 90.5 90.5 90.5 90.5

Creditor 369 411 465 479 527 582
Other Current Liab 109 146 138 138 138 138
LT Debt 2.06 0.13 25.2 25.2 25.2 25.2
Other LT Liabilities 13.6 14.5 22.8 22.8 22.8 22.8
Shareholders Equity 236 170 35.2 47.4 61.6 77.6
Minority Interests 0.0 0.0 0.0 0.0 0.0 0.0
Total Cap. & Liab. 735 744 777 803 865 936
Non-Cash Wkg. Capital (241) (265) (233) (246) (259) (273)

Net Cash/(Debt) 237 124 (64.0) (52.6) (34.7) (6.8)
Debtors Turn (avg days) 18.8 17.4 17.2 16.3 17.2 17.2
Creditors Turn (avg days) 97.3 106.3 113.9 112.4 108.9 108.7
Inventory Turn (avg days) 39.7 44.9 57.9 60.5 55.3 55.2
Asset Turnover (x) 3.1 2.7 2.8 2.9 3.0 3.1
Current Ratio (x) 1.0 0.7 0.6 0.6 0.6 0.7
Quick Ratio (x) 0.7 0.4 0.2 0.3 0.3 0.3
Net Debt/Equity (X) CASH CASH 1.8 1.1 0.6 0.1
Net Debt/Equity ex MI (X) CASH CASH 1.8 1.1 0.6 0.1
Capex to Debt (%) 962.5 5,516.5 56.8 64.8 64.8 64.8
Page 110
Cash Flow Statement (RMm) Capital Expenditure

FY Dec 2014A
2014A 2015A
2015A 2016A
2016A 2017F
2017F 2018F
2018F 2019F
2019F RMm
140.0
Pre-Tax Profit 89.3 77.8 70.8 83.0 96.4 108 120.0

Dep. & Amort. 38.2 48.3 53.1 60.6 66.5 73.1 100.0
Tax Paid (27.4) (24.8) (19.3) (21.9) (25.4) (28.5)
80.0
Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 0.0
60.0
Chg in Wkg.Cap. 66.0 23.7 (31.9) 13.6 12.3 13.8
Other Operating CF (67.5) 1.88 2.63 0.0 0.0 0.0 40.0
Net Operating CF 98.6 127 75.4 135 150 167 20.0

Capital Exp.(net) (71.4) (115) (65.7) (75.0) (75.0) (75.0) 0.0
Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 0.0 2015A 2016A 2017F 2018F 2019F
Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 0.0 Capital Expenditure (-)
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 0.0
Other Investing CF 48.0 (2.7) (10.9) 0.0 0.0 0.0
Net Investing CF (23.4) (117) (76.6) (75.0) (75.0) (75.0)
Div Paid (62.9) (62.9) (55.5) (48.9) (56.8) (63.8)
Chg in Gross Debt (120) (5.3) 48.1 0.0 0.0 0.0
Capital Issues 250 (58.9) (132) 0.0 0.0 0.0
Other Financing CF 53.8 0.0 65.5 0.0 0.0 0.0
Net Financing CF 121 (127) (73.6) (48.9) (56.8) (63.8)
Currency Adjustments 0.0 0.0 0.0 0.0 0.0 0.0
Chg in Cash 196 (118) (74.8) 11.4 18.0 27.9
Opg CFPS (sen) 2.65 8.37 9.66 11.0 12.4 13.8
Free CFPS (sen) 2.21 0.99 0.87 5.43 6.74 8.26
VALUATIONS
Fair valu
value
e at RM1.58
RM1.58.
58. 7-Eleven (M) is currently trading at an FY17 PE of 29x, which is in line with its regional peers. Although the group offers
one of the best exposures to a potential consumption recovery story with an aggressive new store expansion plan supporting topline growth,
we are concerned that high operating expenses arising from new store expansion could weigh on its earnings. Furthermore, a slow recovery in
consumer sentiments could cap its near term earnings growth. Our fair value for 7-Eleven (M) stands at RM1.58, based on 29x PE, which is in
line with its regional peers average PE. Although management has guided that dividend payout would be c.50%, we are assuming an 80%
dividend payout in view of (1) the group has been giving c.100% payout in the past 3 years, and (2) strong operating cash flows. This implies a
dividend yield of 3% for FY2017.
Risk Assessment: Moderate

Category Risk Rating Wgt Wgtd Score
1 (Low) - 3 (High)
Earnings 2 40% 0.8
Financials 1 20% 0.2
Shareholdings 1 40% 0.4
Overall 1.4
Regional peer comparison

M ark et O perat ing Net Div idend
Cap P/ BV P/Sales RO E M argin M argin Y ield
Company Rat ing TP ( S$m) Px L ast PE ( A c t ) PE ( Y r 1) PE(Y r 2) (x) (x) (% ) ( %) ( %) (% )
Dairy F arm Intl BUY 9.96 17,262 9.02 26.6x 25.4x 23.5x 7.2x 1.1x 30% 4.1% 4.2% 2.5%
CP ALL BUY 75 21,455 59.00 32.1x 26.5x 22.0x 8.0x 1.1x 33% 6.6% 4.1% 1.9%
Big C Supercntr HOLD 210 6,787 204.00 26.3x 21.3x 19.0x 3.3x 1.4x 16% 7.0% 5.5% 0.9%
Siam Makro Not rated n/a 6,484 33.50 29.7x 26.2x 25.3x 10.2x 0.9x 45% 4.1% 3.1% 2.5%
Puregold BUY 49.50 3,474 44.00 22.2x 20.0x 17.9x 2.6x 1.0x 14% 6.9% 4.8% 0.7%
Robinsons Retail BUY 92.00 3,052 76.50 22.2x 19.6x 17.1x 2.1x 0.9x 11% 5.4% 4.7% 0.9%
Sumber Alfaria Not rated n/a 2,310 530.00 36.6x 27.4x 22.5x 4.3x 0.4x 14% 2.3% 1.1% 0.8%
Matahari Putra Not rated n/a 632 1,120.00 N/A 87.1x 34.2x 2.5x 0.4x 9% 1.9% 1.3% 2.9%
PSC Not rated n/a 2,108 165.00 66.6x N/A N/A 16.8x 2.8x 39% 6.6% 4.5% 0.3%
Sheng Siong BUY 1.13 1,428 0.94 22.8x 21.1x 19.8x 5.5x 1.8x 27% 8.9% 8.5% 4.3%
Hero Supermarket Not rated n/a 580 1,320.00 36.3x N/A N/A 1.0x 0.4x 3% 1.6% 1.1%
Bison Cons Not rated n/a 186 1.90 29.0x 24.6x 19.6x 15% 8.3% 6.9%
7 Elev en Not rated n/a 530 1.67 30.6x 29.2x 25.0x 34.7x 0.7x 148% 3.7% 2.6% 3.0%
Modern Internasi Not rated n/a 36 75.00 N/A N/A N/A 0.3x 0.4x -3% 6.7% -4.8%
Midi Utama ID Not rated n/a 278 920.00 13.5x N/A N/A 31% 5.0% 2.3% 1.6%
Regional av erage 30. 1x 29. 0x 22. 7x 6. 8x 1.0x 27% 5. 3% 3.3% 1. 8%
Source: DBS Banks, Bloomberg Finance L.P
Page 111
SMC Research

Bison Consolidated
Bloomberg: Bison MK Equity | Reuters: BISO.KL Refer to important disclosures at the end of this report
DBS Group Research . Equity 18 Apr 2017
NOT RATED RM2.12 KLCI : 1,733.93 Shop at your convenience

Closing price as of 17 Apr 2017
Return *: 1.4 Fast growing homegrown retail convenience store
Risk: Moderate operator
Potential Target 12-mth*: 12-Month RM 2.02 (-5%
downside) Plans to open 70 new stores per year, largely in
the Klang Valley
Analyst
Regional Research Team; equityresearch@dbs.com 3-year earnings CAGR of 24.7% (FY16 FY19F)
Fair value is RM2.02, pegged at 25x FY17 PE
The Business
Leading home grown retail convenience store player. Bison
Price Relative
RM Relative Index
Consolidated Bhd (Bison) is principally involved in the provision of press
2.5
208
and convenience retail products under its major trade name
2.4
2.3 188 myNEWS.com. As at December 2016, Bison had a total of 316 outlets
2.2 168 and currently has c.11% market share, second largest in Malaysia, but
2.1
this is significantly behind 7-Eleven Malaysia Holdings Bhd with >80%
148
2.0
128
1.9
1.8 108
market share.
1.7 88
Mar-17
Expanding to heavy footfall areas. Bison has a presence in most states
Bison Consolidated (LHS) Relative KLCI (RHS)
Forecasts and Valuation across Malaysia with 80% of its outlets in the Klang Valley. Most stores
FY Oct (RMm) 2016A 2017F 2018F 2019F are located in high traffic areas such as shopping malls (31%),
Revenue 264 336 411 490 hypermarkets (16%), high street (15%), and transportation hubs (15%).
EBITDA 28.7 38.1 47.0 55.9 It plans to open 70 new stores per annum while maintaining the
Pre-tax Profit 23.6 32.6 39.7 47.0 geographical mix in order to optimise return per store.
Net Profit 18.1 25.0 30.5 36.1
Net Pft (Pre Ex.) 18.6 25.0 30.5 36.1 Successfully established a feasible business model. Bison posted an
EPS (sen) 5.85 8.06 9.83 11.6
impressive profit CAGR of 15.7% over FY13-FY16 despite the
EPS Pre Ex. (sen) 6.00 8.06 9.83 11.6
EPS Gth (%) 34 38 22 18 challenging retail environment. We believe that the group has
EPS Gth Pre Ex (%) 38 34 22 18 successfully established a feasible business model in the domestic retail
Diluted EPS (sen) 5.85 8.06 9.83 11.6 space. With its upcoming new outlet openings and gradual recovery in
Net DPS (sen) 1.50 1.50 1.50 1.50
consumer sentiment, we are optimistic that the group will continue to
BV Per Share (sen) 49.2 55.7 64.0 74.2
PE (X) 36.3 26.3 21.6 18.2 record double digit earnings growth at CAGR of 24.7% over FY17-19.
PE Pre Ex. (X) 35.4 26.3 21.6 18.2
P/Cash Flow (X) 33.5 31.8 13.6 15.9 Fair value at RM2.02. We have derived a TP of RM2.02, pegging at 25x
EV/EBITDA (X) 22.6 17.3 13.5 11.1 FY17 PE, which is 20% discount to its regional peers average PE of 30x,
Net Div Yield (%) 0.7 0.7 0.7 0.7
P/Book Value (X) 4.3 3.8 3.3 2.9 after taking into account of its smaller size relative to peers. We believe
Net Debt/Equity (X) CASH 0.0 CASH CASH that the stock is fairly valued at this juncture.
ROAE (%) 17.4 15.4 16.4 16.8
At A Glance
Consensus EPS (sen): 7.90 10.0 12.0 Issued Capital (m shrs) 310.1
Other Broker Recs: B: 4 S: 0 H: 1 Mkt. Cap (RMm/US$m) 595.3 / 134.4
ICB Industry : Consumer Services D&D Consolidated Sdn Bhd 68.8
ICB Sector: General Retailers Free Float (%) 26.0
Principal Business: Bison are principally involved in the provisions of
press and convenience retailing products under the main trade
name myNEWS.com. The group also operates under other trade
names such as Newsplus, WH Smith, MagBit, and The Front Page.
Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.
*This Equity Explorer report represents a preliminary assessment of the subject company, and does not represent initiation into DBSVs coverage
universe. As such DBSV does not commit to regular updates on an ongoing basis. The rating system is distinct from stocks in our regular coverage
universe and is explained further on the back page of this report.
ed: JS / sa: BC, PY
Page 112
Bison Consolidated
REVENUE DRIVERS its centralised distribution centre (CDC). This is mainly to cater for on
the go food which currently contributes 9% to total revenue.
Leading home grown retail convenience store player. Bison is
principally involved in the provision of press and convenience retailing Chart 1: New store opened per year
products under its major trade name myNEWS.com. The group also No of Stores
operates under other trade names such as Newsplus, WH Smith, 350
299
350
300 300
MagBit, and The Front Page. The WH Smith outlets at airports 70
250 229 250
throughout Malaysia are the result of its 50:50 joint venture with UKs 196
200 41 200
165
WH Smith Plc. Bison is the largest home grown retail convenience store 37
150 16 150
operator in Malaysia and the second largest player overall, with an 229
100 196 100
estimated ~11% market share based on number of stores. 156 165
50 50
Nonetheless, we acknowledge that the gap between the Bison and 7-
0 0
Eleven Malaysia Holdings Bhd (7-Eleven) is significant with the latter FY13 FY14 FY15 FY16
Stores opened during the year Stores at beginning of the year
having >80% market share in the standalone convenience store Stores at end of the year
segment and operates >2,000 stores across all states in Malaysia as at
31 Dec 2016.
Chart 2: Revenue contribution for FY2016
Strengthening its foothold in Klang Valley region. As at December
2016, Bison had a total of 316 outlets (including nine WH Smith
outlets). The group opened 70 new outlets in FY 2016 (against 41 in
FY 2015), comprising 69 myNEWS.com outlets and one WH Smith
outlet. Bison has a presence in most states in Malaysia with 80% of its
outlets concentrated in Klang Valley and c.10% each in northern and
southern part of Peninsular Malaysia, coupled with three outlets in East
Malaysia. The group is planning to open about 70 new stores per
annum and intends to maintain its geographical mix of 80:20 (80% in
the Klang Valley and 20% in the rest of Malaysia).
Operating in high density areas. Bisons stores are mostly located in Chart 3: Gross profit contribution for FY2016
strategic areas that have heavy footfall such as shopping malls (31%),
hypermarkets (16%), high street (15%) and transportation hubs
(15%). We believe it is imperative for the group to maintain this
strategy while expanding its retail network to ensure strong traffic
volume to sustain earnings growth.
F&B segment to drive earnings As at October 2016, 68% of the

groups total SKUs were convenience retail products (tobacco, food
and beverages (F&B), and non-food), followed by print media (29%)
and consumer services (3%). Nonetheless, we observe that F&B
segment is gradually taking over tobacco products as the biggest
contributor to group revenue. The former contributed 39% to Bisons
FY2016 sales (vs tobacco products at 35%), compared to 32% in Figure 1: Site for new food processing centre
FY2013. The improved contribution of its F&B segment is mainly due to
1) weak tobacco sales due to high excise duty and growing illicit
cigarettes trade and, 2) the groups deliberate effort to expand this
segment since it carries better margins than some of its other
segments. We understand that gross margin for beverages ranges from
40-60%, and its own food products have about 50% gross margin.
Meanwhile, non-food segment has blended gross margin of about
40%.
Bison is planning to expand the self-service convenience F&B or fresh

food section at outlets where there is demand. Besides that, it plans to
develop its own food processing centre in Rawang, located adjacent to
Page 113
Bison Consolidated
COMPETITIVE ADVANTAGE
The past few years have been challenging period for the retail sector, Figure 3: Fresh and stylish layout
which was adversely impacted by (1) GST implementation since April
2015, (2) slowing economic growth momentum, (3) concerns over job
prospects, (4) ringgit volatility, (5) high household debt, and (6) higher
cost of living contributed partly by the removal of subsidies by the
government.
Despite these challenges, we observed that Bison has been able to

consistently register positive same store sales growth (SSSG) over 3
years (as illustrated in chart 4) and strong earnings growth (3-year
CAGR of 15.7%). We believe Bisons impressive financial performance
relative to its peers is supported by its competitive advantages outlined
Source: Company
below:
Small is beautiful - small outlet allows efficient optimisation of floor
Chart 4: Same store sales growth space. The average size of Bisons stores is about 100 square feet,
RM which is quite small and only allows selective product offerings. This
2.5% allows the group to optimise its product offerings depending on the
outlets location and demographic pattern.
2.2%
2.0%
1.8%
In-house team to handle product sourcing and active product
customisation = optimised product offerings. We understand that
1.5% Bisons management is heavily involved in the business operations
ranging from design of outlets, sourcing of products, customisation of
1.0% product offerings etc. The group has developed an integrated IT
0.8% platform for effective business controls over its retail business. This
allows management to access detailed and customised sales data and
0.5%
trends at all its outlets, effectively tracking SKU (stock-keeping unit)
movements and monitoring in-store performance, as well as examining
0.0% the efficiency of its advertising and promotional strategies.
FY2014 FY2015 FY2016
Same Store Sales Growth Bison also ensures that the inventory level at each outlet remains at an
optimal level by monitoring it via auto ordering system - which will
Source: Company, DBS Bank trigger automatic orders once inventory falls below the required level.
Strategically located and stylishly designed. As mentioned above,
Bisons outlets are strategically located in heavy traffic areas such as Homegrown brand - no strings attached. Being a homegrown
shopping malls (31%), hypermarkets (16%), high street (15%), and convenience store operator provides Bison with full control over its
transportation hubs (15%). This helps to ensure strong footfall to its business, operational systems and retail management. This also gives
outlets even during the period where consumers have been tightening Bison the flexibility to respond to the ever-changing market demands
their belts. Besides that, its outlets are stylish and trendy, and this helps and consumer preferences in an efficient and timely manner.
to attract customers. Furthermore, the group does not need to pay royalty or licensing fees
for use of its brand name. In a trading business where profit margins
Figure 2: Store locations are relatively thin, a high licensing or royalty fees could have a
significant impact on the profitability of a convenience outlet operator.
This serves as one reason why Bison enjoys healthier operating margin
c.9% (vs c. 4% for 7-Elevens)
Carving out a feasible business model in the convenient store segment.

While conventional theory may favour a convenience outlet with a
large range of product offerings, we believe Bison has successfully
carved out a feasible business model by having a relatively small yet
dynamically set up outlet that is strategically focused on heavy footfall
areas, with customised & selective product offerings to optimise its
return per store.
Source: Company
Page 114
Bison Consolidated
In fact, we have observed that customers who visit Bisons outlets have
a predetermined objective of products to purchase, and Bison becomes Figure 4: Bisons top management
their preferred convenience outlet due to (1) its open and easy
accessibility, (2) limited queuing time, (3) products are dynamically Name Profile
Dang Tai Luk He is the founder of Bison and has
displayed and easy to find, and, (4) rarely has out of stock issues.
Managing Director more than 20 years of experience in
retail business. Mr Dang Tai Luk
holds a Bachelor of Computer
KEY OPERATING ASSETS Science (Honours) and a Master of
Science in Computer Science from
Asset light model. The group does not own the physical properties of University of Manitoba, Canada. He
its outlets. The outlets located in shopping malls, hypermarkets, high started his career as a programmer
streets, office spaces, transportation hubs, resorts and medical centres in the banking industry prior to
setting up Bison stores in 1996. With
are all rented from third parties with most tenancy contracts having
his academic background and IT
duration of less than three years. knowledge, he developed computer
applications to assist and enhance
The major asset that the group owns is its CDC in Rawang. The Bison's business operations
majority of Bisons SKUs were distributed from its CDC, which has Dang Tai Wen Prior to joining Bison, he was a
122,601 square feet of storage capacity and is operating at c.70% Chief Operating Officer junior architect and holds a Bachelor
utilisation rate. of Environmental Design from the
University of Manitoba, Canada.
Currently, he is responsible in
creating the format of its outlets and
Bison's branding concept
MANAGEMENT & STRATEGY
Dang Tai Hock He has 24 years of experience in
Managed by founding members. Bisons leadership team comprises
Executive Director sales, including with his own
founding members from the Dang family, who are actively involved in company -Alphanical Press Sdn Bhd,
the business since the group was established in 1996. which is principally involved in
printing and stationeries. He joined
Bison in 2014, and leads the F&B
Its Managing Director, Mr Dang Tai Luk, has over 20 years of division, oversees the development
experience in the retail convenience business and through its private and expansion of F&B products or
vehicle - D&D Consolidated Sdn Bhd. The Dang family is a substantial SKUs for Bisons retail business
chain.
shareholder with an effective stake of 74% in Bison. Source: Company
Together with his siblings, Dang Tai Wen and Dang Tai Hock, and an
experienced management team, they have transformed Bison from
small retail shop to become the largest home grown retail convenience
store operator.
Page 115
Bison Consolidated
FINANCIAL HIGHLIGHTS GROWTH PROSPECTS
Impressive financial performance despite challenging retail

Good start to the year. Bisons revenue for 1QFY17 grew by 24% y-o-y
environment. We believe that the impressive financial performance
to RM76.2m. The growth in revenue was driven by sales from new
registered by Bison in FY14-16, despite the challenging retail
store openings, improved product mix, and promotional activities.
environment, has provided strong evidence that the group has
Mechandise sales which carry better margins, rose 21% y-o-y, and this
successfully developed a niche business model compared to other
led to a stronger bottomline growth (+48% q-o-q) to RM6.4m.
convenience store operators.
Chart 6: Revenue & margins (FY13-16 CAGR of 18.6%) Given that the group has planned to open 70 new stores per year
RM'm (representing >20% of its 316 store-network as at end FY16) in FY17-
300 37%
264 18, coupled with gradual recovery in consumer sentiment, we are
36%
250 218 36% positive that the group will continue to record strong earnings growth
36%
36% 35%
182
200
158 35% going forward.
150 34%
34% 34% We understand that the group is currently improving its logistic
100 76 33%
33%
33% 33% capabilities by establishing secondary distribution center in Johor for
50
32% better efficiency. Once completed, the existing distribution centre in
0 32%
FY13 FY14 FY15 FY16 1QFY17 Rawang will only cater to the central and northern regions.
Revenue Gross Margin
RISKS
Inability to secure strategic locations. As a convenience store operator,
3-year revenue CAGR of 18.6% (FY13 16). Bison has registered one of the key success factors for Bison lies with its ability to secure
strong and consistent revenue growth over last 3 years, at CAGR of outlet locations with high foot traffic. Bison plans to open 70 new
18.6%. We forecast revenue to grow even faster this year, by 27% y- outlets per year as part of its expansion plan. With the new outlets
o-y and the strong 1Q17 performance has reaffirmed our stand. mainly in the Klang Valley region, it is crucial for Bison to secure prime
Growth in revenue will be mainly supported by the progressive locations especially in the shopping malls. However, in the event of
addition of new outlets and recovery in consumer sentiment. Bison failing to secure optimal retail locations for its new outlets, the
groups growth prospects could be adversely affected.
Chart 7: Net profit & margins (FY13-16 CAGR 15.7%)

Unforeseen changes in tenancy arrangements. Bison does not own the
RMm
20.0 17.9 18.1 12% properties of its outlets. The outlets located in shopping malls,
18.0
16.0 11% 10% hypermarkets, high streets, office spaces, transportation hubs, resorts
13.5
14.0 12.4 8% and medical centres are all rented from third parties with most tenancy
12.0 8% contracts having tenures of less than three years. The terms and
10.0 7% 7% 6%
8.0 6% 6.4 conditions of the tenancy agreements may be subject to the landlords
6.0 4%
review and revisions. There is a risk that the landlords will increase
4.0 2%
2.0 rental rates or not renew the tenancies when they expire.
0.0 0%
FY13 FY14 FY15 FY16 1QFY17
Net Profit Net Margin
Page 116
Bison Consolidated
Key Assumptions Sensitivity Analysis

FY Oct 2014A 2015A 2016A 2017F 2018F 2019F 2017
Net additions of stores 37.0 41.0 70.0 70.0 70.0 70.0 GP margin +/- 1% Net Profit +/-
Sales per store (RM,m) 0.93 0.95 0.88 0.91 0.94 0.96 11%
Gross margin (%) 33.1 34.2 35.8 36.4 36.8 36.9
Improving margins due

Income Statement (RMm) to better product mix
FY Oct 2014A 2015A 2016A 2017F 2018F 2019F
Revenue 182 218 264 336 411 490

Cost of Goods Sold (122) (143) (170) (214) (260) (309)
Gross Profit 60.4 74.4 94.5 122 151 181
Other Opng (Exp)/Inc (44.1) (57.0) (71.4) (90.9) (113) (135)
Operating Profit 16.3 17.4 23.1 31.4 38.6 46.1
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 0.0
Associates & JV Inc 0.30 0.73 1.11 1.11 1.11 1.11
Net Interest (Exp)/Inc (0.4) (0.5) (0.1) 0.03 0.03 (0.3)
Exceptional Gain/(Loss) 0.08 0.0 (0.5) 0.0 0.0 0.0
Pre-tax Profit 16.3 17.7 23.6 32.6 39.7 47.0
Tax (3.9) (4.2) (5.5) (7.6) (9.2) (10.9)
Preference Dividend 0.0 0.0 0.0 0.0 0.0 0.0
Net Profit 12.4 13.5 18.1 25.0 30.5 36.1
Net Profit before Except. 12.4 13.5 18.6 25.0 30.5 36.1
EBITDA 19.4 21.8 28.7 38.1 47.0 55.9
Growth
Revenue Gth (%) 15.5 19.3 21.4 27.2 22.3 19.2 Margins Trend
EBITDA Gth (%) 7.1 12.5 31.8 33.0 23.2 19.0
10.0%
Opg Profit Gth (%) 2.7 6.9 32.4 36.1 22.8 19.5 9.5%
Net Profit Gth (Pre-ex) (%) 5.5 9.5 37.6 34.4 22.0 18.2 9.0%
Margins & Ratio 8.5%
Gross Margins (%) 33.1 34.2 35.8 36.4 36.8 36.9 8.0%
Opg Profit Margin (%) 8.9 8.0 8.7 9.4 9.4 9.4 7.5%
Net Profit Margin (%) 6.8 6.2 6.9 7.4 7.4 7.4 7.0%
ROAE (%) 33.4 27.6 17.4 15.4 16.4 16.8 6.5%
ROA (%) 16.8 14.9 11.9 11.3 11.9 12.2 6.0%

5.5%
ROCE (%) 24.3 21.2 16.0 14.4 15.5 15.9
5.0%
Div Payout Ratio (%) 87.9 3.7 25.6 18.6 15.2 12.9 2015A 2016A 2017F 2018F 2019F
Net Interest Cover (x) 39.6 38.2 209.8 NM NM 173.2
Operating Margin % Net Income Margin %
Page 117
Bison Consolidated
Quarterly / Interim Income Statement (RMm) Revenue Trend

90 12%
FY Oct 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 80
10%
70
Revenue 61.7 64.3 65.1 72.5 76.2 60 8%
Cost of Goods Sold (38.2) (41.9) (42.8) (46.7) (48.8) 50
Gross Profit 23.5 22.4 22.3 25.8 27.4 40
6%
Other Oper. (Exp)/Inc (16.0) (16.6) (17.4) (20.1) (19.7) 30 4%

Operating Profit 7.45 5.84 4.88 5.66 7.76 20
Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 10
2%
Associates & JV Inc 0.27 0.48 0.27 0.10 0.41 0 0%

Net Interest (Exp)/Inc (0.1) 0.07 (0.1) 0.03 (0.1)
4Q2014
1Q2015
2Q2015
3Q2015
4Q2015
1Q2016
2Q2016
3Q2016
4Q2016
1Q2017
Exceptional Gain/(Loss) 0.0 (1.2) 0.0 0.0 0.0
Pre-tax Profit 7.58 5.23 5.02 5.79 8.05 Revenue Revenue Growth % (QoQ)
Tax (1.8) (1.2) (1.0) (1.5) (1.7)

Net Profit 5.77 4.00 4.06 4.31 6.36
Net profit bef Except. 5.77 5.15 4.06 4.31 6.36
EBITDA 8.70 7.37 6.32 7.04 9.51
Growth Healthier margins due to

Revenue Gth (%) nm 4.1 1.3 11.3 5.2
better product mix
EBITDA Gth (%) nm (15.3) (14.2) 11.5 35.0
Opg Profit Gth (%) nm (21.7) (16.4) 16.0 37.1
Net Profit Gth (%) nm (30.7) 1.3 6.2 47.7
Margins
Gross Margins (%) 38.0 34.8 34.3 35.6 36.0

Balance Sheet (RMm) Asset Breakdown (2017)
FY Oct 2014A 2015A 2016A 2017F 2018F 2019F Net Fixed
Assets -
Net Fixed Assets 42.7 46.7 65.3 85.7 99.5 112 Debtors - 49.7%
21.2%
Invts in Associates & JVs 0.34 1.57 2.68 3.79 4.90 6.01
Other LT Assets 0.01 0.01 8.64 8.64 8.64 8.64
Cash & ST Invts 8.68 7.02 17.8 7.83 30.5 45.9
Inventory 15.8 21.8 29.8 39.6 39.4 46.9
Debtors 12.6 21.2 25.4 36.5 36.2 43.2 Assocs'/JVs -
Other Current Assets 1.76 1.26 54.9 54.9 54.9 54.9 2.2%
Total Assets 81.9 99.5 204 237 274 317
Bank, Cash
Inventory - and Liquid
ST Debt 1.45 1.46 1.55 1.55 1.55 1.55 23.0% Assets -
Creditor 25.2 31.1 40.4 45.0 54.6 65.0 3.9%
Other Current Liab 1.14 0.59 0.15 7.66 9.32 11.0
LT Debt 9.67 8.75 7.31 7.31 7.31 7.31
Other LT Liabilities 1.97 2.11 2.59 2.59 2.59 2.59
Shareholders Equity 42.5 55.5 152 173 199 230
Minority Interests 0.0 0.0 0.0 0.0 0.0 0.0
Total Cap. & Liab. 81.9 99.5 204 237 274 317
Non-Cash Wkg. Capital 3.80 12.5 69.5 78.3 66.5 68.9

Net Cash/(Debt) (2.4) (3.2) 8.93 (1.0) 21.6 37.0
Debtors Turn (avg days) 23.4 28.3 32.2 33.6 32.3 29.6
Creditors Turn (avg days) 70.2 73.6 79.0 75.0 72.0 72.7
Inventory Turn (avg days) 41.1 49.1 57.0 60.9 57.1 52.4
Asset Turnover (x) 2.5 2.4 1.7 1.5 1.6 1.7
Current Ratio (x) 1.4 1.5 3.0 2.6 2.5 2.5
Quick Ratio (x) 0.8 0.9 1.0 0.8 1.0 1.1
Net Debt/Equity (X) 0.1 0.1 CASH 0.0 CASH CASH
Net Debt/Equity ex MI (X) 0.1 0.1 CASH 0.0 CASH CASH
Capex to Debt (%) 80.9 75.3 266.4 293.2 238.8 238.8
Page 118
Bison Consolidated
Cash Flow Statement (RMm) Capital Expenditure

FY Oct 2014A 2015A 2016A 2017F 2018F 2019F RMm
30.0
Pre-Tax Profit 16.3 17.7 23.6 32.6 39.7 47.0 25.0

Dep. & Amort. 2.74 3.59 4.48 5.60 7.29 8.67
Tax Paid (27.4) (0.6) (0.5) (0.1) (7.6) (9.2) 20.0
Assoc. & JV Inc/(loss) (0.3) (0.7) (1.1) (1.1) (1.1) (1.1) 15.0
Chg in Wkg.Cap. 0.32 (8.6) (56.6) (16.3) 10.1 (4.1)
10.0
Other Operating CF 20.6 (2.9) 49.7 0.0 0.0 0.0
Net Operating CF 12.2 8.50 19.7 20.7 48.5 41.2 5.0
Capital Exp.(net) (9.0) (7.7) (23.6) (26.0) (21.2) (21.2) 0.0
Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 0.0 2015A 2016A 2017F 2018F 2019F
Invts in Assoc. & JV 0.0 (0.5) 0.0 0.0 0.0 0.0 Capital Expenditure (-)
Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 0.0
Other Investing CF 0.23 0.13 (61.9) 0.0 0.0 0.0
Net Investing CF (8.8) (8.1) (85.5) (26.0) (21.2) (21.2) Stores and CDC
Div Paid (10.9) (0.5) (4.7) (4.7) (4.7) (4.7) expansion
Chg in Gross Debt 1.31 (1.0) (1.6) 0.0 0.0 0.0
Capital Issues 0.0 0.0 88.7 0.0 0.0 0.0
Other Financing CF 5.32 (0.6) (7.0) 0.0 0.0 0.0
Net Financing CF (4.3) (2.1) 75.5 (4.7) (4.7) (4.7)
Currency Adjustments (0.3) (0.3) 0.0 0.0 0.0 0.0
Chg in Cash (1.2) (2.0) 9.66 (10.0) 22.6 15.4
Opg CFPS (sen) 544 5.51 24.6 11.9 12.4 14.6
Free CFPS (sen) 147 0.26 (1.3) (1.7) 8.80 6.47
VALUATIONS
No formal dividend policy. Despite not having a formal dividend
Fair value at RM2.02. We pegged Bisons fair value at 25x FY17F PE,
policy, Bison had declared 1.5sen DPS (26% payout) to shareholders
a 20% discount to the industry average given its smaller size.
in FY2016. We assume that the group will maintain 1.5 sen/share
Although we are positive on the groups growth prospects, we
DPS going forward, on the back of strong cashflows, strong balance
believe that the stock is fairly priced at this juncture.
sheet and bright growth prospects. This translates to 0.7% dividend
yield for FY17.
Risk Assessment: Moderate
Category Risk Rating Wgt Wgtd Score
1 (Low) - 3 (High) Low free float, key stakeholders control two-thirds of the company.
Earnings 2 40% 0.8 Shares in Bison remain tightly held, with a free float of 26%. The
Financials 1 20% 0.2 Dang family effectively owns 74% - mostly through its family
Shareholdings 1 40% 0.4
private vehicle, D&D Consolidated Sdn Bhd.
Overall 1.4
Regional peer comparison

Cap P/BV P/Sales ROE M argin M argin Y ield
Company Rat ing TP (S$m) Px Last PE (A ct ) PE (Y r 1) PE(Y r 2) (x) (x) (%) (%) (%) (%)
DairyFarm Intl BUY 9.96 17,262 9.02 26.6x 25.4x 23.5x 7.2x 1.1x 30% 4.1% 4.2% 2.5%
CP ALL BUY 75 21,455 59.00 32.1x 26.5x 22.0x 8.0x 1.1x 33% 6.6% 4.1% 1.9%
Big C Supercntr HOLD 210 6,787 204.00 26.3x 21.3x 19.0x 3.3x 1.4x 16% 7.0% 5.5% 0.9%
Siam Makro Not rated n/a 6,484 33.50 29.7x 26.2x 25.3x 10.2x 0.9x 45% 4.1% 3.1% 2.5%
Puregold BUY 49.50 3,474 44.00 22.2x 20.0x 17.9x 2.6x 1.0x 14% 6.9% 4.8% 0.7%
Robinsons Retail BUY 92.00 3,052 76.50 22.2x 19.6x 17.1x 2.1x 0.9x 11% 5.4% 4.7% 0.9%
Sumber Alfaria Not rated n/a 2,310 530.00 36.6x 27.4x 22.5x 4.3x 0.4x 14% 2.3% 1.1% 0.8%
Matahari Putra Not rated n/a 632 1,120.00 n/a 87.1x 34.2x 2.5x 0.4x 9% 1.9% 1.3% 2.9%
PSC Not rated n/a 2,108 165.00 66.6x n/a n/a 16.8x 2.8x 39% 6.6% 4.5% 0.3%
Sheng Siong BUY 1.13 1,428 0.94 22.8x 21.1x 19.8x 5.5x 1.8x 27% 8.9% 8.5% 4.3%
Hero Supermarket Not rated n/a 580 1,320.00 36.3x n/a n/a 1.0x 0.4x 3% 1.6% 1.1%
Bison Cons Not rated n/a 134 2.12 35.4x 26.7x 21.9x 3.9x 2.3x 15% 9.4% 7.4% 0.7%
7 Eleven Not rated n/a 530 1.69 30.6x 29.2x 25.0x 34.7x 0.7x 148% 3.7% 2.6% 3.0%
Modern Internasi Not rated n/a 36 75.00 n/a n/a n/a 0.3x 0.4x -3% 6.7% -4.8%
Midi Utama ID Not rated n/a 278 920.00 13.5x n/a n/a 31% 5.0% 2.3% 1.6%
Regional av erage 30.1x 29.8x 22.7x 6.8x 1.0x 27% 5.3% 3.3% 1.8%
Source: DBS Bank, Thomson Reuters
Page 119
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Share price appreciation + dividends
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Completed Date: 18 Jul 2017 12:46:22 (SGT)

Dissemination Date: 18 Jul 2017 13:15:38 (SGT)
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DBS Group Research. Equity 18 Jul 2017

STI : 3,298.24 KLCI : 1,755.19

ASIAN INSIGHTS VICKERS SECURITIES

Online players in Singapore remain unprofitable as challenges abound 12

Macro fundamentals support the growth of MGR 22

Companies with scale are the players in the sweet spot 27

ASIAN INSIGHTS VICKERS SECURITIES

Appendix Players in online grocery retail 32

ASIAN INSIGHTS VICKERS SECURITIES

ASIAN INSIGHTS VICKERS SECURITIES

ASIAN INSIGHTS VICKERS SECURITIES

Online grocery retail is growing but it wont be a threat to retailers as yet

High internet and mobile broadband penetration rates in

Source: Bain & Company, DBS Bank Philippines 53% 65%

ASIAN INSIGHTS VICKERS SECURITIES

Source: Euromonitor, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES

Online grocery penetration rate by country

Source: Kantar Worldpanel

ASIAN INSIGHTS VICKERS SECURITIES

Why some countries are more successful in online grocery 2) Japan

Koreans are tech-savvy and known to be extremely willing to 3) France

online chat-rooms; reaching out to consumers with e-

Source: Nielsen TradeDimensions, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES

4) UK Key online players in ASEAN

ASIAN INSIGHTS VICKERS SECURITIES

ASIAN INSIGHTS VICKERS SECURITIES

Online players in Singapore remain unprofitable as challenges abound

growing revenues by 41x over 4 short years. Based on

ASIAN INSIGHTS VICKERS SECURITIES

ASIAN INSIGHTS VICKERS SECURITIES

ASIAN INSIGHTS VICKERS SECURITIES

E-mart < S$30 S$3 delivery fee 90%

S$3 Free delivery 80%

Ocado < 75 2.99 - 6.99 delivery fee 70%

75 Free delivery 60%

Gofresh < S$60 S$15 delivery fee 50%

S$60 Free delivery 40%

Minimum online purchase to discourage low value orders. In 10%

order to keep online grocery retailing profitable, many online 0%

ASIAN INSIGHTS VICKERS SECURITIES

Consumers most averse to purchasing fresh groceries

Source: Nielsen, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES

ASIAN INSIGHTS VICKERS SECURITIES

7-Eleven Malaysia Management maintains its new store 16

ASIAN INSIGHTS VICKERS SECURITIES

2) Direct sourcing Cutting off the middlemen will improve

Staff costs will reduce with handpay, self-checkouts, and

4) Reduction in manpower costs Self-checkout counters

Source: DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES

Labour cost savings for retailers. With a host of new

Handpay technology. Customers have to register by scanning

ASIAN INSIGHTS VICKERS SECURITIES

Serves only locals as the store will require your biodata

Source: Trendhunter, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES

Macro fundamentals support the growth of MGR

Singapore (SGD mn) 5423.3 5969.7 4.9%

The largest modern grocery retail markets remain Thailand,