March 2017

WLCN It feels like home

Executive summary
Wilcon Depot, Inc. Wilcon Depot, Inc. (Ticker: WLCN) is among the Philippines largest home improvement
and construction supplies retailers in terms of net selling space and net sales. WLCNs
strong brand presence and dynamic growth strategies should allow the company to
maintain and expand its market share in the industry.

WLCN has become a one-stop shop and a preferred retailer for Filipino consumers
home improvement needs. The company has been in the Philippines for 40 years and
has a total of 37 stores nationwide as of September 2016. Among its products include
Sector - tiles and flooring, plumbing and sanitary wares, electrical and lighting products,
Subsector Home Product Store hardware and tools, furniture, furnishings and houseware, paints, and building materials.
They primarily target retail customers who are keen on building, furnishing, maintaining,
repairing, or renovating their homes.
Company Statistics
Company Wilcon Depot, Inc. Industry leader
Rating Subscribe WLCN is the largest home improvement and construction supplies (HICS) retailer in the
Philippines, with net selling space at 286,053 sqm. The company also ranks #2 in terms
Offer Price (Php) 5.00-5.68
of net sales with a 6.3% revenue market share as of end 2015. WLCNs two closest
Offer size (Php) Up to 7.8B competitors, SM Retail Group (Ace Hardware, SM Homeworld, Our Home, and The
Shares Outstanding (M) 4,099 Handyman) and Robinsons Retail (operates Handyman Do It Best and True Value) have
219,000 sqm and 203,000 sqm in net selling space, respectively as of end-2016,
Market Cap (Php M) 23,282
according to Euromonitor. In terms of net sales as of end-2015, SM Retail Group ranks
Free Float 34% #1 with a 15.2% market share, while Robinsons Retail is #3 with a 4% market share.
Offer Period Mar. 20-24
Banking on the countrys strong economic backdrop; Property sector
Tentative Listing Date Mar. 31
We believe that the Philippine housing market remains resilient. Production, which
Issue Manager First Metro Invest. includes vertical and horizontal housing, recently touched the 200,000 units per annum
Joint Lead Underwriter BDO Cap. levels. In addition, we estimate that Philippine residential construction floor area has
grown by 7.2% annually in the past five years, as more Filipino families are able to afford
home purchases aided by benign interest rates and a healthy labor market. Assuming
Company Background continued health in the economy, we believe that the housing backlog (est. at 4M units)
Wilcon Depot, Inc. (Ticker WLCN) is among the could eventually be filled.
Philippines largest home improvement and
construction supplies retailers in terms net selling
space and net sales. WLCNs strong brand
Rating Subscribe
presence and dynamic growth strategies should We recommend a Subscribe on WLCN shares as we expect the growth to be driven
allow the company to maintain and expand its by robust domestic macroeconomic fundamentals. Sustained growth from the real
market share in the industry. estate market would translate into strong demand for household items and repairs. We
believe in the strong growth potential of WLCN, thus recommending a Subscribe rating.
Top Shareholders At Php5.68/sh, it will be trading at 23.2x PER based on an estimated earnings growth
of 24%. Though it will be trading at a premium relative to its peers (13x), we think from
Name %
WBDI 49.0
the reasons above, such premium is justified.
William T. Belo 20.4
Rosy Chua Belo 10.2 Financial and Valuation Summary
Lorraine Belo-Cincochan 10.2
Mark Andrew Y. Belo 10.2 FY Ending 12/31 2014A 2015A 2016F 2017F 2018F
As of May 18, 2016 Revenues (Php M) 13,596 14,450 16,005 18,600 21,500
Gross Profit (Php M) 2,520 3,610 4,398 5,226 6,088
Research Analyst EBITDA (Php M) 186 858 1,263 1,609 1,968
Lexter Frederich L. Azurin Net Profit (Php M) 40 538 805 1,004 1,179
GPM (%) -1.6 43.2 21.8 18.8 16.5
(+632) 898 7584 / 898 7543
lflazurin@abcapital.com.ph EBITDA margin -58.6 361.9 47.1 27.4 22.3
EPS growth (%) - +1245 +50 +25
PER (x) 582.1 43.3 28.9 23.2 19.7
Source: ABCSI Estimates, Bloomberg, Company Data

The information contained herein is based on sources which we believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to
be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. This firm and its Directors and Officers and/or members of their
families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and
otherwise.
 March 2017

Company overview
Wilcon Corporation (Ticker: WLCN) opened its first branch in Quezon City in 1977. After
four decades, WLCN, now through its 100% subsidiary Wilcon Depot, Inc. (WDI),
operates 37 branches (as of September 2016) across major urban areas in the
Philippines. The company is among the Philippines largest home improvement and
construction supplies (HICS) retailers. Based on available industry data, they are the
leading HICS retailer by net selling space (as of 2016) and ranks #2 by revenue market
share as of 2015. The company offers a wide array of quality brands (over 2,000 local
and foreign brands) across various product categories (90,000 150,000 SKUs)
spanning: plumbing and sanitary wares; tiles/flooring; hardware and tools; furniture,
furnishings and houseware; paints, and building materials.

Source: Wilcon Prospectus

Corporate restructuring
Wilcon Corporation (WC) began restructuring its operations in 2012 to realize
economies of scale and operational efficiencies. Prior to December 2015, WC operated
the Wilcon retail stores, owned real estate, and held Wilcon related intellectual property
rights. On December 2015, WC incorporated WLCN as a 100% subsidiary, effectively
transferring the net assets of its retail business to the newly incorporated entity. WLCN
leases properties from WC for its retail stores. Land, intellectual property, and other
investment properties remain with WC.

Pre-restructuring Post-restructuring

Source: Prospectus

The information contained herein is based on sources which we believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to
be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. This firm and its Directors and Officers and/or members of their
families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and
otherwise.
 March 2017

Strong industry position

WLCN is the largest home improvement and construction supplies (HICS) retailer in the
Philippines by net selling space with 286,053 sqm. The company also ranks #2 in terms
of net sales with a 6.3% revenue market share as of 2015. According to Euromonitor,
WLCNs two closest competitors, SM Retail Group (operates Ace Hardware, SM
Homeworld, Our Home, and The Handyman) and Robinsons Retail (operates
Handyman Do It Best and True Value) have respective net selling space of 219,000
sqm and 203,000 sqm as of end-2016. As of 2015 net sales, SM Retail Group ranks #1
with a 15.2% market share, while Robinsons Retail is #3 with a 4% market share.

Store formats
WLCN sells its merchandise via two main channels: Wilcon Depot and Wilcon Home
Essentials. As of September 2016, there are 37 Wilcon stores nationwide. Wilcon Depot
is the primary revenue source of WLCN, comprising more than 90% of the companys
net sales. The depot format stores carry between 90,000 - 150,000 SKUs (stock keeping
unit) and offer customers a broad range of home and construction supply products. The
net selling space of depot stores may range from 2,800 sqm to 31,000 sqm with an
average net selling space of 9,500 sqm. As of end-2016, WDI has 31 depots
strategically located in the major cities across the country.

Industry overview
The key demand indicators for the home improvement and construction supplies (HICS)
sector include: housing market growth, construction sector gross value added (GVA),
discretionary spending patterns, and importation of home improvement goods.

Housing market
We believe that the Philippine housing market remains resilient. Production, which
includes vertical and horizontal housing, recently touched the 200,000 units per annum
levels. Assuming continued health in the economy, we believe that the housing backlog
(est. at 4M units) could eventually be filled.

Importation of home improvement products

Given that the majority of companies linked to the HICS industry rely on major suppliers
from foreign countries, importation of goods sold in the industry serves as a key demand
indicator. In the last five years, importation of all the major home improvement products
excluding paints registered at double digit growth rates.

Major Home Improvement Top Three Source Value (in '000 USD) Average Growth Rate
Industry items Countries PH Total Import in last 5 years

Plumbing and Sanitary Wares China, Thailand, Vietnam 53,057 19.50%

Hardware and Tools Products China, Japan, USA 455,812 13.20%

Tiles / Flooring China, Vietnam, Indonesia 277,068 30.40%

Electrical and Lighting China, Japan, USA 442,330 17.50%

Furniture, Furnishing and Houseware China, Malaysia, Japan 299,418 17.20%

Paints Singapore, Japan, Thailand 101,156 7.60%

Building Materials China, S.Korea, Vietnam 569,682 26.70%

Total Excluding Appliances 2,198,523 19.10%

Appliances China, Singapore, HK 1,285,574 21.10%

Total 3,484,097 19.80%

Source: Prospectus

The information contained herein is based on sources which we believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to
be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. This firm and its Directors and Officers and/or members of their
families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and
otherwise.
 March 2017

HICS industry growth and competition

Given the positive industry dynamics, the HICS market has grown by approximately
6.2% annually from 2013-2015. The HICS sector is highly fragmented, since the majority
of the industry is composed of small and independent retailers. On the other hand, the
biggest industry players such as Wilcon Depot, Inc. (WDI), SM Retail Group, and
Robinsons Retail operate a large network of stores nationwide via depots and/or mall-
based branches. We believe that the large players have been able to grow much faster
than the independents due to economies of scale and strong cash flow generation,
which have allowed them to fund growth prospects at a faster rate.

Based on available industry data, WDI is the largest in terms of net selling space (as of
2016), and is the second largest by industry revenue market share (as of 2015).

Source: Prospectus

Competitive strengths
WDIs inherent strengths are evident through its strong industry standing and brand
presence across the Philippines. Furthermore, WDI is able to consistently improve its
product portfolio and customer service to satisfy customer preferences, while
maintaining strong partnerships with suppliers.

Industry leadership and strong brand presence

Since opening its first branch in 1977, WDI has expanded its business into a nationwide
network of 37 stores as of Sept. 2016. The Wilcon brand has become synonymous with
a one-stop shop and a preferred retailer for Filipino consumers home improvement
needs. WDI holds the top spot in terms of net selling space (6.6% of total) and ranks
number 2 by revenue market share (6.3% of total) in the highly competitive home
improvement and construction supplies (HICS) industry. In addition, WDIs large format
depot stores allow the company to offer a broad range of core products such as
plumbing and sanitary, and tiles/flooring

Growth strategies
The company intends to grow its business by implementing the following dynamic
strategies: aggressively expand the Wilcon store network in existing markets and in fast-
growing cities, sustain a healthy level of same store sales growth (SSSG), and
continually improve on operational capabilities. Assuming that these growth initiatives
are properly executed and the favourable industry dynamics are maintained, we
estimate annual net sales and net profit growth of 14% and 31%, respectively for 2015-
2018E.

The information contained herein is based on sources which we believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to
be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. This firm and its Directors and Officers and/or members of their
families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and
otherwise.
 March 2017

Expand store network in key locations

WDI plans to aggressively expand its store network by solidifying its brand presence in
existing markets and by tapping key regions in the Philippines that are experiencing
rapid economic expansion and/or rising urbanization. We estimate that the company will
open more than 25 new depot format stores within the next 5 years. On average, this
translates to 5 new stores per year in the next 5 years, from 1-3 new stores per year in
2013-2015. In terms of geographic breakdown, we forecast that the majority of new
stores will be in NCR and Luzon (55% of total), followed by Mindanao (28%) and Visayas
(17%). Some criteria that the company takes into consideration when deciding on a
store location include number of households within income classes A and B, existing
commercial activity, and the presence of competing retailers with similar product mixes.

Use of proceeds
Php M % Est. Timing
Store network expansion 6,111.8 81% 2017-2021
Debt repayment 972.4 13% 2017-2018
General corporate purposes 500.0 7% 2017-2018
Total 7,584.2 100%
Source: Company Data

Bulk of the proceeds will be used for its store expansion (81% of total proceeds), while
the balance will be used for debt repayment and corporate purposes. WLCN estimates
to raise up to Php7.5B from the IPO.

Regional Comparison
Market Cap EV/EBITDA EV/EBITDA PER PER
(USD M) 2017E 2018E 2017E 2018E
Latham (James) PLCC 212 11.4 10.5 18.7 17.7
Handsman Co. Ltd 219 - - - -
Kondotec, Inc. 230 - - 10.3 9.5
Bricorama SA 252 - - 13.5 12.6
Sweldol AB-B 253 9.9 8.7 12.9 10.8
Canwel Bldg Materials 265 8.3 7.7 12.6 11.1
Kuwait Port. Cement 356 - - - -
Beter Bed Holding NV 374 8.4 7.3 16.8 14.3
BMTC Group, Inc. 375 8.0 - 12.5 -
Byggmax Group AB 423 9.0 8.2 13.5 11.7
9.2 8.5 13.8 12.5
Source: Bloomberg estimates

Rating Subscribe
We recommend to Subscribe on WLCN shares as we expect the growth to be driven
by strong domestic macroeconomic fundamentals. Sustained growth from the real
estate market would also translate into strong demand for household items and repairs.
Though it may be trading at a premium to its peers, we think this is justified considering
that the local HICS industry is expected to grow at a faster pace versus its regional
counterparts. We believe in the strong growth potential of WLCN, thus recommending
to Subscribe.

The information contained herein is based on sources which we believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to
be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. This firm and its Directors and Officers and/or members of their
families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and
otherwise.