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Summary of Broker’s Recommendation
| Stock Code | WLCON |
| Company Name | Wilcon Depot Inc. |
| Broker | RCBC Securities |
| Opinion Issued on | 7 Nov 2024 |
| Recommendation | Hold |
| 1-Year Target Price | PHP 17.00 |
We downgrade our rating for WLCON from BUY to HOLD given the slower-
than-expected performance in 9-months (9M) 2024, as net income accounted for only 59.3% of our 2024 forecast (9-month net income usually accounts for 75% of full-year earnings).
Moreover, we expect 4Q24 to still post unfavorable numbers given the onslaught effects of bad weather to start the quarter (selected Wilcon stores closed 2 days due to Typhoon Kristine) and the yearly October anniversary promotions that could weigh on topline margins. We therefore adjusted our target price (TP) from Php19.00 to Php17.00 per share.
Analysis and Opinion
Net income drops 22% to Php2.1 billion
Wilcon Depot, Inc. (WLCON) reported 3rd quarter (3Q) 2024 net income of P608 million, down 33% year-on-year (y/y), bringing 9M 2024 net income to Php2.1 billion, down 22% and below our estimates. Net sales q/q dropped 3.4% to Php8.5 billion and 1% y/y to Php25.7 billion in the nine months, as its Home Depot business still struggled amid weak consumer demand despite discounting initiatives.
Meanwhile, its gross profit (GP) declined by 5.3% to Php10.1 billion as GP margin (GPM) dropped by 5bps to 39.5%. Operating expenses (OPEX) surged 8.9% to Php7.1 billion due to higher expansion-related expenses such as trucking, depreciation & amortization, outsourced services, salaries, utilities, and rent.
SSSG still down as drop in transaction count continues
Same-store-sales growth (SSSG) in 3Q 2024 came in at -8.5%, from -4.6% in the 1st half (1H) of 2024. This stamped the 6th consecutive quarter of negative SSSG (2Q23: -3.4%) as transaction count fell 3.7%, while ticket size slid 2.3% due to discounting and promotions. Softer consumer demand for home improvement and construction supplies contributed to the decline in sales.
Earnings estimates cut
We slashed our 2024 net income estimate by 9% to Php3.3 billion from the previous Php3.6 billion, signifying a -6% y/y growth. Net sales forecasts changed -1% to Php36.3 billion from Php36.6 billion, bringing gross profit to Php14.3 billion. Operating income will likely contract 8% from previous estimates due to higher OPEX. For 2025, we forecast a flat net income of Php3.3 billion from our initial 5% expected growth.
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