Bloomberg News

Robinsons Drops in Debut as Typhoon Hits Stocks: Southeast Asia

November 11, 2013

Robinsons Retail Holdings Inc. (RRHI), the largest Philippine initial public offering, retreated in its Manila debut amid concern the devastation from Super Typhoon Haiyan will weigh on Southeast Asia’s fastest-growing economy.

The operator of supermarkets and department stores fell 2.6 percent to 56.50 pesos at the close, after raising at least $621 million from investors. The Philippine Stock Exchange Index sank 1.4 percent, the most in six weeks, while rival Puregold Price Club Inc. (PGOLD) was unchanged.

“Negative sentiment is hanging over the market,” Bach Johann Sebastian, a senior vice president at Robinsons, said at the bourse today. “We expect the share price to improve as the company expands and delivers on its promise.”

The year’s most powerful cyclone may have killed as many as 10,000 people as it flattened buildings and unleashed flooding. The economic impact may reach $14 billion, according to Jonathan Adams, a senior analyst at Bloomberg Industries, who cited Kinetic Analysis Corp.

Money managers at Metropolitan Bank & Trust Co. (MBT) and Rizal Commercial Banking Corp. bought Robinsons shares in the IPO on expectations that household purchases in the nation of 106 million people will increase and the company’s valuation discount versus Puregold may narrow.

Relative Value

The IPO price of 58 pesos per share valued the company at 22 times estimated 2014 profit, according toSebastian. Puregold trades at 25 times the average of analysts’ earnings estimates compiled by Bloomberg.

“The stock wasn’t spared by the impact of the typhoon,” said Allan Yu, the chief investment officer at Metropolitan Bank & Trust, the nation’s third-largest money manager with $8.7 billion under management. Yu said he’s considering adding to holdings after today’s retreat.

Robinsons’ shops in areas hit by the typhoon are operating, except for its supermarket and department store in Tacloban, Sebastian said today. The shut stores “won’t affect the company that much,” he said.

Consumer companies may get a boost from purchases tied to relief efforts, said Jonathan Ravelas, the chief market strategist at Manila-based BDO Unibank Inc., the largest listed Philippine lender.

Consumption Outlook

The Philippine gauge had climbed 9.3 percent this year through Nov. 8, versus a 5.7 percent drop in the MSCI Emerging Markets Index. Foreign investors have bought a net $888 million of Philippine shares since the start of 2013 through Nov. 8, the fifth-straight year of inflows, as economic growth lifted corporate profits to all-time highs and the nation won investment-grade status from ratings companies.

Private consumption accounts for about 70 percent of the Philippine economy, which joined China as the fastest-growing country in Asia in the second quarter.

Philippine gross domestic product, which increased 7.5 percent in the three months to June, will probably expand 7 percent during the whole of 2013 and 6 percent next year, among the five-fastest projected growth rates of 65 economies tracked by Bloomberg worldwide.

Disposable incomes in the Philippines may rise at a 5.4 percent compound annual rate from 2012 through 2017, versus 4.8 percent from 2008 to 2012, Robinsons said in its IPO prospectus, citing the Economist Intelligence Unit. Sales at store-based retailers are forecast to grow at a 7.7 percent rate, up from 3.9 percent.

Expansion Plans

Robinsons, the nation’s biggest IPO in dollar terms, plans to spend more than 80 percent of the share-sale proceeds to expand its store network. Half of the spending will go toward building new supermarkets, Chief Financial Officer Diosdado Zapata said at an investor briefing in Manila on Oct. 14.

The company, controlled by Philippine billionaire John Gokongwei, plans to operate 1,400 shops by the end of next year as it expands beyond Manila, Zapata said. Robinsons had 940 stores, from DIY shops to drugstores, at the end of June, according to its IPO prospectus.

“I like the offer,” said Rico Gomez, head of the trust trading division at Manila-based Rizal Commercial Banking Corp. “There’s expectations among investors the stock will rally.”

Puregold, which operates supermarkets and hypermarkets, has advanced 36 percent in Manila this year. The stock gained 260 percent since it began trading in October 2011, four times more than the PSE index. Puregold had 192 stores at the end of June, up from less than 80 when it raised about $194 million from its IPO.

Fed Risk

Robinsons is unlikely to repeat the two-year returns of its rival, said Metrobank’s Yu. The company may have less room for expansion than Puregold, while the prospect of reduced monetary stimulus in the U.S. is curbing investor demand for emerging-market equities, he said.

The Philippine stock gauge lost 15 percent since May 22, when Fed Chairman Ben S. Bernanke signaled the central bank’s bond-buying program could be trimmed if the U.S. economy showed a sustained recovery.

Robinsons’ sales of durable consumer goods, including electronics and apparel, make it more attractive than Puregold for some investors, said Jomar Lacson, an analyst at Campos Lanuza & Co. in Manila. About 38 percent of Robinsons sales are tied to discretionary consumer spending, according to Sebastian.

“Those who want to bet on the growth and changing spending pattern caused by rising income will add Robinsons to their holdings,” Lacson said. “Puregold doesn’t give a full Philippine retail experience. It’s not exposed to spending on consumer durables.”

Discretionary purchases may double to 30 percent of household spending from 15 percent in as little as five years if the economy sustains growth near current levels, according to Alex Pomento, a strategist at Macquarie Group Ltd. in Manila.

“With the expected shift in consumer spending patterns, this segment becomes attractive,” Pomento said. “At the end of the day, Robinsons is a good proxy to consumption. With a discounted valuation to Puregold, the stock’s bias should be upwards.”

To contact the reporter on this story: Ian Sayson in Manila at isayson@bloomberg.net

To contact the editor responsible for this story: Michael Patterson at mpatterson10@bloomberg.net


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