MAYBANK Securities Inc. has maintained a “buy” call on Lucio Co-led Puregold Price Club Inc., noting that holiday consumer spending was likely to support an estimated 2024 net income growth projection of 20 percent.
In a report released on Monday, Maybank said that it expected Puregold’s fourth-quarter earnings “to account for at least 30 percent of our FY (fiscal year) 2024 forecast,” noting that as of end-Sept. 2024, the retailer’s net income of P6.91 billion was already 67 percent of the 2024 net income estimate of P10.27 billion.
“Following a low base in [the fourth quarter of 2023], our optimism stems from improving basket size growth and easing inflation,” it added.
Maybank Securities said that it was maintaining its 2024/2025 estimated net income forecast as well as its discounted cash flow-target price of P49, which implies a 2025 estimated price-to-earnings ratio of 12.9x, as it sees a potential demand boost from the upcoming midterm elections in May.
Puregold’s recent acquisition of 153 Puremart stores is also expected to speed up the retailer’s expansion plans, it said.
Maybank noted that Puremart stores have an average size of 150 square meters, slightly smaller than a minimart, and viewed as more practical and cost efficient than Puregold stores, given that Puremart’s cost per store is P2.5 million versus Puregold’s capital expenditure of approximately P5 million to P6 million per Puregold store.
“This acquisition will hasten [Puregold’s] expansion to compete against the growing discounter format,” the investment bank said.
For 2025, Maybank estimates Puregold’s topline to grow by 5 percent, driven by a forecast 3-percent/8-percent year-on-year growth for Puregold-only and S&R stores, respectively, on the back of stable basket sizes.
A potential upside surprise from midterm election-related spending is also expected to boost Puregold’s sales in the first half of the year.
“We expect Puregold to continue execution of its competitive pricing strategies to defend its market share but expect stable margin trajectories, as price reductions in key SKUs (stock keeping units) may be offset by volume-based discounts and marketing support from suppliers,” Maybank added.
Price cuts during the third quarter last year were said to have boosted Puregold’s same-store sales growth (SSSG), with management stating that the reduction in prices of key SKUs had improved loyalty and basket sizes of its carded members.
Puregold-alone stores’ SSSG surged 6.7 percent in the third quarter compared to 2.7 percent in the same period in 2023, while SSSG of 2 percent was recorded in the second quarter last year.
“Notably, ticket size growth turned positive in Q3 2024, reversing [seven] quarters of decline, which is a good signal for Q4 holiday spending momentum,” Maybank said.
Puregold reported a 4.5-percent growth in net income for the January to September 2024 period to P6.9 billion, driven by a 9-percent increase in revenues to P151.97 billion.
During the same period, the retailer opened 19 new Puregold stores, three S&R membership outlets and three New York Style QSRs (quick service restaurants), bringing its total store count to 591 by the end of September.
Puregold shares rose 0.33 percent to close at P29.95 each on Tuesday.
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