STOCK PICK: COSCO CAPITAL (COSCO) Holding company of Lucio Cos - PowerPoint PPT Presentation

STOCK PICK: COSCO CAPITAL (COSCO) • Holding company of Lucio Co’s business interests • A diversified conglomerate with exposure in retail, property development, liquor distribution, oil and mining business • Currently on expansion mode, set to acquire and merge with existing players; enter into new sectors: LPG retail, and likely, banking • An alternative domestic retail play; trading at discount

COSCO Company Structure

STOCK PICK: COSCO CAPITAL (COSCO) • PUREGOLD PRICE CLUB (PGOLD) is 51% owned; biggest income contributor to COSCO • Operates 228 stores in 52 cities and 56 municipalities across the country • Combined net selling area of 390,000 sqm • Share price hit by sagging margins, intense retail competition

STOCK PICK: COSCO CAPITAL (COSCO) • LIQUOR DISTRIBUTION: 100% owned by COSCO; third largest income contributor • Operates three units: Premier Wine & Spirits, Montosco, and Meritus Prime • Distribute popular liquor and non-liquor brands such as Jack Daniels, Jose Cuervo, Perrier Water and Red Bull among others • Entered the brandy segment to compete with EMP

STOCK PICK: COSCO CAPITAL (COSCO) • REAL ESTATE OPERATIONS: 100% owned by COSCO, second largest income contributor • Through six companies, it operates and leases commercial properties (buildings, land, malls) located mostly in Metro Manila • Its tenants include Puregold, S&R warehouse, Abenson, etc • Most valuable property is in Bonifacio Global City

STOCK PICK: COSCO CAPITAL (COSCO) • Retail operations (PGOLD) 1H14 Income mix accounted for 57% of COSCO income in 1H14, despite a 7% decline y-o-y 4% 13% • Real estate income grew 23% y- o-y in 1H14 on higher sales and contribution from new retail outlets (NE Pacific) 57% 26% • Liquor income increased 16% y- o-y on higher sales, new brands for distribution • May see a bigger income pie due to more M&A and entry into new business segments Retail Real Estate Liquor Others

STOCK PICK: COSCO CAPITAL (COSCO) • In 2014, COSCO acquired 100% of Office Warehouse, a school and office supplies retailer • Acquired 360 Pharmacy, a drug retailer • Bought at least 90% of Liquigaz Phils Corp, an LPG retailer of US$80m; it holds a 31% LPG market share • Owner Lucio Co agrees to buy 49.99% in PB Com, a bank, for PhP7.9bn; may be folded-in to COSCO in future

COSCO: VALUATION % ownership Price (P) shares (m) Value (Pm) Attributable NAV per Value (Pm) share (P) Puregold 51% 33.55 2,766 92,813 47,335 6.39 Real estate 100% 21,006 21,006 2.84 Liquor 100% 10,452 10,452 1.41 Oil and Mining 100% 3,200 3,200 0.43 Retail LPG 90% 3,520 3,168 0.43 81,993 11.50 Net cash (debt) 2,777 0.37 PB Com fold in* 50% 33.00 478 15,774 7,887 1.07 Total 87,937 12.94 Based on estimated market value sum-of-the-parts NAV, COSCO is • valued at PhP11.87 per share, including the recently acquired retail LPG business Possible fold-in of PB Com could add PhP1.07 NAV per share • At current levels, COSCO is steeply undervalued relative to target price • of PhP12.94, offering a 63% upside Risks: weaker PGOLD margins, poor execution of M&As •

STOCK PICK: COSCO CAPITAL

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