ssi group, inc

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®

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17 December 2014

Asia Pacific/Philippines

Equity Research

Specialty Softlines

SSI Group, Inc.

(SSI.PS / SSI PM) INITIATION

Specialist in retailing ■ Initiating coverage with OUTPERFORM and TP of P11.30. SSI is the

largest specialty retailer in the Philippines operating 672 stores (>4x larger than the No. 2 player) representing 106 brands. Sales from Fast Fashion and Luxury are expected to represent 35% and 22% of 2014 sales respectively, but over the next three years Fast Fashion should grow 1.5-2x faster than other categories. SSI has a 30% economic interest in PH FamilyMart (PFM), which is capable of becoming No. 2 in the convenience store sector.

■ Unique combination of rising relevance and value enhancement. Retailers that can aggressively expand their store base and selling space while driving ROIC higher offer investors a unique proposition and warrant premium valuations. SSI fits this bill, as 24% annual selling space growth will be accompanied by ROIC reaching 19% in 2016, which will put it comfortably ahead of its relevant peers. Pushing returns higher while becoming more relevant is the key value proposition for shareholders.

■ 44% annual earnings growth through 2016. Among retailers covered by Credit Suisse in NJA, SSI presents the strongest earnings growth profile on the back of 18% top-line growth, expanding gross and operating margins, modest deleveraging and evolving equity investments. Inventory levels are high and present heightened merchandising mix, but given their strong operating capabilities in the market, we believe GMs are sustainable and inventory levels will become more digestible for investors.

■ 12-month target price of P11.30. Our valuation is primarily based on EV/IC vs Excess Returns model because it most appropriately captures management's ability to deliver a more relevant retailer (store expansion, market share gains, top-line growth), while creating value for shareholders (rising ROIC). Multiple expansion potential over the next 12 months is appealing as the stock currently trades at 10% and 13% '15E P/E and EV/EBITDA discounts to the peers. Risks to our target price include high inventory levels, depreciating Philippines Peso, store expansion and operating cost inflation.

Share price performance

The price relative chart measures performance against the

PHILIPPINE SE COMPOSITE INDEX which closed at 6966.21

on 17/12/14

On 17/12/14 the spot exchange rate was P44.72/US$1

Performance over 1M 3M 12M Absolute (%) 7.3 — — — Relative (%) 10.9 — — —

Financial and valuation metrics

Year 12/13A 12/14E 12/15E 12/16E Revenue (P mn) 12,788.0 14,852.4 17,803.9 20,745.2 EBITDA (P mn) 1,538.3 2,739.7 3,254.5 3,881.8 EBIT (P mn) 904.6 1,814.1 2,143.5 2,578.5 Net profit (P mn) 600.8 1,025.0 1,298.8 1,802.5 EPS (CS adj.) (P) 0.29 0.31 0.39 0.54 Change from previous EPS (%) n.a. Consensus EPS (P) n.a. — — — EPS growth (%) 23.5 6.8 26.7 38.8 P/E (x) 31.5 29.5 23.3 16.8 Dividend yield (%) 0 0 0 0 EV/EBITDA (x) 22.2 12.7 10.7 8.5 P/B (x) 6.7 4.6 3.8 3.1 ROE (%) 28.3 21.7 17.8 20.4 Net debt/equity (%) 143.1 69.4 57.2 28.8

Source: Company data, Thomson Reuters, Credit Suisse estimates

100

105

110

115

120

6

8

10

12

Nov-14

Price (LHS) Rebased Rel (RHS)

Rating OUTPERFORM* [V] Price (17 Dec 14, P) 9.13 Target price (P) 11.30¹ Upside/downside (%) 23.8 Mkt cap (P mn) 30,246.5 (US$ 676.4) Enterprise value (P mn) 34,801 Number of shares (mn) 3,312.86 Free float (%) 26.1 52-week price range 9.32 - 7.73 ADTO - 6M (US$ mn) 4.3

*Stock ratings are relative to the coverage universe in each

analyst's or each team's respective sector.

¹Target price is for 12 months.

[V] = Stock considered volatile (see Disclosure Appendix).

Research Analysts

Karim P. Salamatian, CFA

852 2101 7996

[email protected]

Danielo Picache

632 858 7758

[email protected]

17 December 2014

SSI Group, Inc.

(SSI.PS / SSI PM) 2

Focus charts and table Figure 1: In a nascent industry where modern format retail

penetration is remarkably low…

Figure 2: …rising wealth is the key driver to consumers

spending more on discretionary goods Wealth per adult (US$) CAGR, 2005-13

Source: Euromonitor Note: Wealth includes financial and non-financial assets net of debt.

Source: Credit Suisse Global Wealth Databook

Figure 3: SSI is ideally situated as the largest and fastest

growing specialty retailer…

Figure 4: …with rising margins from strong brands, rising

productivity and operating leverage

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 5: SSI presents the most appealing combination of

rising relevance and improved shareholder return among

ASEAN retailers

Figure 6: Credit Suisse valuation of SSI Group, Inc. All valuations are based on 2015E

Source: IBES, Credit Suisse estimates Source: Company data, Credit Suisse estimates

79%

74%

72%

70%

64%

62%

53%

44%

41%

27%

16%

4%

2%

Japan

Australia

South Korea

Singapore

China

Hong Kong

Taiwan

Thailand

Malaysia

Philippines

Indonesia

Vietnam

India

17.7%

11.7%10.8% 10.7%

8.0%7.1% 4.9% 4.4%

3.4%

1.3%

Mya

nmar

Philip

pines

China

Indo

nesia

Mala

ysia

Viet

nam

Thail

and

India

Kore

a

Pakis

tan

Avg. = 8.0%

64 76 90 110 142 167

439

524597

723

862

962

0%

5%

10%

15%

20%

25%

30%

35%

-

200

400

600

800

1,000

1,200

2011 2012 2013 2014E 2015E 2016E

Selling Space (000 sqm) No. of Stores

Selling Space Growth (YoY; rhs)

808

1,22

3

1,55

1 2,82

3

3,22

6

3,80

1

7.9%

10.5%

12.1%

19.0%18.1% 18.3%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2011 2012 2013 2014E 2015E 2016E

EBITDA (Ps mn) EBITDA Margin

SSI

MAPI.JK

MPPA.JK

ROBINS.BK

PGOLD.PS

RRHI.PS

CPALL.BK

HMPRO.BK GLOBAL.BK

OSIL.SI

ECII.JK

ACES.JK

RALS.JK

ERAA.JK BIGC.BKDAIR.SI

LPPF.JK

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

-10% 0% 10% 20% 30% 40% 50%

3yr F

WD

Sal

es G

row

th

3yr FWD Earnings Growth

Valuation Approach Weighting

Target

Multiple

('15E)

Peer

Average

Implied

Equity Value

(P mn)

Value of

PH

FamilyMart

(per share)

Implied

Value per

Share

EV/IC vs ROIC/WACC 60% 2.5x 1.8x 34,731 10.48

EV/EBITDA 25% 13.5x 12.4x 40,248 0.49 12.64

P/E 15% 27.0x 26.6x 39,256 0.49 12.34

Credit Suisse 12m Target Price 11.30

Implied Valuation Multiples

2014E EV/EBITDA 15.3x


2014E P/E 26.1x

2015E P/E 28.6x

2014E P/B 4.1x

2015E P/B 4.8x

17 December 2014

SSI Group, Inc.

(SSI.PS / SSI PM) 3

Specialist in retailing Introduction to SSI Group, Inc.

Founded in 1987 by the Tantoco family (founders of Rustan's Group), SSI Group, Inc.

(SSI) has grown to become the leading specialty retailer in the Philippines with 672 stores

(117,793 sqm) and net sales of P14.1 bn for the 12 months ending September 2014. The

company is the exclusive domestic manager, distributor and retail operator for 106 brands

(104 international brands, and two owned brands), primarily in softlines categories

grouped under: (1) Luxury and Bridge, (2) Casual, (3) Fast fashion, (4) Footwear,

Accessories and Luggage (FAL), and (5) Others. 77% of SSI's stores are located in Metro

Manila, but with Fast fashion and Casual categories growing the fastest, rural expansion

will lead to a broader reach. SSI is the 30% equity owner in Philippines FamilyMart (PFM),

66 stores, but we believe will emerge as the No. 2 player in this highly attractive category.

Evolution of a nascent industry

Expectations surrounding the nascent Philippine retail industry are naturally high, given

the enormous potential that lies ahead due to a combination of rising incomes, rising

wealth, increasing sophisticated/discerning consumer preferences, and remarkably low

modern format retail penetration. We believe the country is three years away from entering

the sweet spot of the S-curve whereby discretionary spending will accelerate materially.

Over the next three years, the Philippine retail industry is expected to grow at an annual

pace of 7.4%, which is higher than Private Consumption Expenditure (PCE) growth

forecasts. Modern format retailers are expected to grow sales at 18% over the next three

years as they gain market share from increased penetration. Total selling space in the

market is expected to increase by 25% over the next three years.

Outperforming its peers

SSI's strong brand portfolio, skew towards luxury, scale and operational prowess are

evident from the fact that the company outperforms its relevant regional peers on key

operating (store productivity) and profitability (ROIC and EBITDA margin) metrics. Its sales

and EBITDA per sq ft are 19% and 66% ahead of its peer group average, respectively.

SSI's ROIC and EBITDA margins are both more than 300 bp higher than its peer group

average. Compared with the likes of Mitra Adiperkasa (MAPI.JK, Rp5,175.00,

UNDERPERFORM, TP Rp3,400.00), which is the most relevant comparable in terms of

business structure, SSI outperforms on growth, store productivity and profitability.

Valuation upside based on expanding ROIC

Our 12-month target price of P11.30 is primarily based on our EV/IC versus Excess Return

(ROIC/WACC) model. The comparable EV/EBITDA and P/E represent 25% and 15% of our

valuation approach, respectively. We add our value for PFM of US$121 mn EV or

Ps0.49/share for SSI's proportionate equity interest to our EV/EBITDA and P/E approaches.

SSI Group financial outlook

We believe SSI is unique because it can deliver rising relevance in terms of deeper

store/selling space penetration, and have it accretive to overall returns due to its category

and brand mix, solid execution, low cost inflation, and efficient capital deployment.

We expect SSI to deliver an 18% annual sales CAGR over the next three years versus

12.1% annually from '11-'13. By product segment, Fast fashion should account for a larger

percentage of total net sales, increasing from 33% in 2013 to 39% in 2016—as we

estimate it will grow the fastest at 24.7% annually through 2016. We expect benign cost

pressures (0-5% for rent and labour), coupled with operating efficiencies/scale, will

translate into 36% and 44% annual growth in EBTIDA and net income, respectively.

SSI Group is the leading

specialty retailer in the

Philippines with 672 stores

and 106 brands

The Philippines is

transitioning into a modern

retail market and three

years away from reaching

an inflection point of

accelerating discretionary

spending

SSI outperformed its

regional peers on store

productivity trends, ROIC

and EBITDA margins

Our SSI TP of P11.30

implies '15E P/E and

EV/EBITDA multiples of 29x

and 13x respectively

We expect sales growth to

accelerate to 18%/yr over

the next three years, and

earnings to grow by 44%

due to margin expansion

and scale efficiencies

outpacing cost pressures

17 December 2014

SSI Group, Inc.

(SSI.PS / SSI PM) 4

SSI Group SSI.PS / SSI PM Price (17 Dec 14): P9.13, Rating: OUTPERFORM [V], Target Price: P11.30, Analyst: Karim Salamatian

Target price scenario

Scenario TP %Up/Dwn Assumptions

Upside 16.00 73.93 17x '15E EBITDA – in line with JFC/URC Central Case 11.30 21.24 ~5% premium to relevant peer group Downside 9.00 -1.42 Valued at low-end of peer group multiples

Key earnings drivers 12/13A 12/14E 12/15E 12/16E

Total GSA 98,126 137,406 162,801 185,970 Number of stores (average)

560.5 660.0 792.5 912.0 Sales/Average GSA 141,523 135,021 125,083 124,507 EBITDA/Average GSA 17,167 24,990 22,943 23,376 Gross profit margin (%) 49.2 56.2 56.4 56.5

Income statement (P mn) 12/13A 12/14E 12/15E 12/16E

Sales revenue 12,788 14,852 17,804 20,745 Cost of goods sold 6,496 6,501 7,762 9,026 SG&A 4,754 5,612 6,787 7,838 Other operating exp./(inc.) — — — — EBITDA 1,538 2,740 3,255 3,882 Depreciation & amortisation 634 926 1,111 1,303 EBIT 905 1,814 2,143 2,578 Net interest expense/(inc.) 89.1 238.6 205.0 166.0 Non-operating inc./(exp.) 75.3 58.2 69.3 82.9 Associates/JV (2.3) (144.0) (134.1) 122.7 Recurring PBT 889 1,490 1,874 2,618 Exceptionals/extraordinaries — — — — Taxes 287.8 464.7 574.8 815.7 Profit after tax 601 1,025 1,299 1,802 Other after tax income (33.0) 2.0 2.0 2.0 Minority interests — — — — Preferred dividends — — — — Reported net profit 568 1,027 1,301 1,804 Analyst adjustments 33.0 (2.0) (2.0) (2.0) Net profit (Credit Suisse) 601 1,025 1,299 1,802

Cash flow (P mn) 12/13A 12/14E 12/15E 12/16E

EBIT 905 1,814 2,143 2,578 Net interest (89.1) (238.6) (205.0) (166.0) Tax paid (277.8) (460.6) (569.1) (809.9) Working capital (3,826) (1,937) (169) 470 Other cash & non-cash items 780 885 1,109 1,574 Operating cash flow (2,508) 63 2,309 3,647 Capex (1,950) (2,946) (1,828) (1,668) Free cash flow to the firm (4,459) (2,883) 481 1,979 Disposals of fixed assets — — — — Acquisitions — — — — Divestments 9.6 — — — Associate investments (233.8) (188.3) (52.9) (53.7) Other investment/(outflows) (474.0) (222.3) (376.9) (213.4) Investing cash flow (2,649) (3,357) (2,258) (1,935) Equity raised 257 2,696 — — Dividends paid — — — — Net borrowings 4,421 (539) (16) (845) Other financing cash flow 357.5 2.0 2.0 2.0 Financing cash flow 5,036 2,159 (14) (843) Total cash flow (121) (1,134) 37 868 Adjustments — — — — Net change in cash (121) (1,134) 37 868

Balance sheet (P mn) 12/13A 12/14E 12/15E 12/16E

Cash & cash equivalents 1,135 — 37 905 Current receivables 499.3 610.4 682.9 738.9 Inventories 5,899 6,840 7,160 6,991 Other current assets 339.7 402.3 490.8 623.0 Current assets 7,873 7,853 8,370 9,258 Property, plant & equip. 2,593 4,613 5,331 5,696 Investments 412.0 600.3 653.2 706.9 Intangibles — — — — Other non-current assets 1,000 1,253 1,672 1,928 Total assets 11,878 14,319 16,026 17,588 Accounts payable 3,498 2,672 2,977 3,462 Short-term debt 3,919 2,905 3,222 2,710 Current provisions 210.3 244.2 292.7 341.1 Other current liabilities 22.7 26.3 31.5 36.7 Current liabilities 7,650 5,847 6,524 6,550 Long-term debt 1,174 1,649 1,316 982 Non-current provisions — — — — Other non-current liab. 287.0 261.8 313.9 365.7 Total liabilities 9,111 7,758 8,153 7,898 Shareholders' equity 2,829 6,622 7,931 9,747 Minority interests — — — — Total liabilities & equity 11,878 14,319 16,026 17,588

Per share data 12/13A 12/14E 12/15E 12/16E

Shares (wtd avg.) (mn) 2,073 3,313 3,313 3,313 EPS (Credit Suisse) (P) 0.29 0.31 0.39 0.54 DPS (P) — — — — BVPS (P) 1.36 2.00 2.39 2.94 Operating CFPS (P) (1.21) 0.02 0.70 1.10

Key ratios and valuation

12/13A 12/14E 12/15E 12/16E

Growth(%) Sales revenue 10.1 16.1 19.9 16.5 EBIT 45 101 18 20 Net profit 31.9 70.6 26.7 38.8 EPS 23.5 6.8 26.7 38.8 Margins (%) EBITDA 12.0 18.4 18.3 18.7 EBIT 7.1 12.2 12.0 12.4 Pre-tax profit 6.9 10.0 10.5 12.6 Net profit 4.70 6.90 7.29 8.69 Valuation metrics (x) P/E 31.5 29.5 23.3 16.8 P/B 6.69 4.57 3.81 3.10 Dividend yield (%) — — — — P/CF (8) 481 13 8 EV/sales 2.67 2.34 1.95 1.59 EV/EBITDA 22.2 12.7 10.7 8.5 EV/EBIT 37.8 19.2 16.2 12.8 ROE analysis (%) ROE 28.3 21.7 17.8 20.4 ROIC 16.2 14.0 12.7 14.3 Asset turnover (x) 1.08 1.04 1.11 1.18 Interest burden (x) 0.98 0.82 0.87 1.02 Tax burden (x) 0.68 0.69 0.69 0.69 Financial leverage (x) 4.29 2.18 2.04 1.82 Credit ratios Net debt/equity (%) 143 69 57 29 Net debt/EBITDA (x) 2.57 1.66 1.38 0.72 Interest cover (x) 10.2 7.6 10.5 15.5

Source: Company data, Thomson Reuters, Credit Suisse estimates

17 December 2014

SSI Group, Inc.

(SSI.PS / SSI PM) 5

Introduction to SSI Group, Inc No. 1 specialty retailer in the Philippines with several

prominent international brands

Founded in 1987 by the Tantoco family (founders of Rustan's Group), SSI has grown to

become the leading specialty retailer in the Philippines with 672 stores (117,793 sqm) and

net sales of P14.1 bn for the 12 months ending September 2014. The company is the

exclusive domestic manager, distributor and retail operator for 106 brands (104 international

brands, and two own brands), primarily in softlines categories including fashion and apparel,

personal luxury, cosmetics and beauty products, footwear and accessories.

Its brands are classified under five key segments (Figure 7): (1) Luxury and Bridge, (2)

Casual, (3) Fast fashion, (4) Footwear, Accessories and Luggage (FAL), and (5) Others.

Figure 7: SSI's brand segmentation and key brands As of 30 September 2014

Brand segment No. of brands Key brands

Luxury and Bridge 44

Hermes, Cartier, PRADA, Gucci, Givenchy, Bottega Veneta, Dunhill,

Burberry, Bally, Michael Kors, Salvatore Ferragamo, Jimmy Choo,

Hugo Boss, Ermenegildo Zegna, Alexander McQueen, Guiseppe

Zanotti, Tod's, Saint Laurent, Tory Burch, Kate Spade

Casual 14

GAP, Marks & Spencer, Tommy Hilfiger, Lacoste, CK

Underwear/Jeans, Diesel, Acca Kapa, DKNY, Gant, Polo Ralph

Lauren, Juicy Couture, Banana Republic, C.Wonder

Fast fashion 10 ZARA, Old Navy, Bershka, Stradivarius

Footwear,

Accessories and

Luggage

17 Samsonite, Nine West, Steve Madden, Payless ShoeSource,

Aerosoles, Kenneth Cole, American Tourister, Ecco

Others 21

Pottery Barn, Swarovski, L'Occitane, MUJI, TWG, Oliviers & Co.,

Beauty Bar (owned), MakeRoom (owned), Clinique, Lush, Hamley's,

Salad Stop

Source: Company data

For SSI, brand concentration is not a concern as the top three brands account for only

35% of sales, according to management.

Structure of brand agreements

SSI's agreements with the brand owners is primarily in the form of exclusive franchise or

distribution agreements, whereby the company is responsible for store site selection,

construction and fit-out, marketing, promotions, merchandising, pricing and customer service.

Brand owners provide varying degrees of support in the form of marketing and promotional

content, signage, store designs and training. SSI retains all profits and cash flow from the

stores, while bearing the capital costs, operating costs and inventory of all the stores.

However, under the brand agreements, SSI must source the merchandise directly from the

brand owners and/or approved suppliers—often with minimum purchase spend obligations.

In very few cases, SSI pays brand owners a royalty fee, but this is not common—YTD and

in 2013, royalty fees amounted to 0.7% and 0.4% of net sales, respectively. Global market

contribution fee was also relatively small at 0.5% of net sales in 2013.

Usually, brand agreements are for an initial term of three to eight years and often allow for

automatic renewal upon expiry. More than 50% of the brands have been exclusively

managed in the Philippines by SSI for more than five years, with 29 brands or ~30% being

managed for ten years or more. SSI's key competitive advantage and an integral

component of future growth is its long-standing and mutually beneficial relationships with

the international brands and their owners. The likelihood of brand owners switching

domestic partners is low, given the risk involved, and in a market such as the Philippines,

there are very few companies that have the experience and scale to execute like SSI.

SSI Group is the leading

specialty retailer in the

Philippines with 655 stores

across five key categories—

Luxury and Bridge, Casual,

Fast fashion, Footwear,

Accessories and Luggage,

and Others

SSI works with brand

owners primarily through

exclusive franchise or

distribution agreements

Brand agreements are

usually for an initial term of

3-8 years with automatic

renewal upon expiry, and

relationships tend to be

long-standing

17 December 2014

SSI Group, Inc.

(SSI.PS / SSI PM) 6

Over the past three years, SSI has not had any agreements voluntarily discontinued by

brand principals.

Breadth, scale and scope of store network

Footwear, Accessories and Luggage (FAL) has the largest store count at 209 or 31% of

total stores, but in terms of selling space, Fast fashion is more than 2x larger. Since 2011,

annual growth in stores has been the highest for Fast fashion (33%), Others (20%) and

Casual (18%) categories (Figure 8). This is a function of new smaller format brands

coming to market where penetration increase is off a remarkably low base and there is

naturally less cannibalisation of existing stores and by competitors. From a net sales

growth perspective, annual growth rates through September 2014 in FAL (15%), Luxury

(11%) and Casual (5%) categories (Figure 9) have been the highest as Filipino consumers

enjoy rising incomes and, more importantly, rising wealth. Rising wealth is the key catalyst

to consumers moving to higher price points by seeking out international brands and

greater differentiation through personal luxury goods.

Over the next three years, we expect annual store count, selling space and net sales

growth of 17%, 24% and 18% per year, respectively. Net sales growth should continue to

be driven by Fast fashion, Luxury and FAL categories.

Figure 8: SSI rolling out Fast fashion stores at the fastest

pace… Store count

Figure 9: …but sales in Luxury, and Footwear,

Accessories and Luggage (FAL) are more than double the

Others category Net sales (P mn)

Source: Company data Source: Company data

Not surprisingly, Luxury and Bridge category stores have the highest level of store

productivity (sales/sq m) due to their merchandise ASPs. Logically, store productively is a

linear function with merchandise ASP; so Casual, Fast fashion, FAL and Others rank in that

order below Luxury (Figure 10). An interesting point to make is that the 37% difference

between Casual and Fast fashion store productivity is larger than the difference in

merchandise ASP because in the latter, the stores are disproportionately larger (Figure 11).

140 173 187 209

110119 130

146 80108

124130

72

7794

107

37

47

62

80

0

100

200

300

400

500

600

700

800

2011 2012 2013 3Q14

FAL Luxury & Bridge Other Casual Fast Fashion

439

672

597

524

1,113 1,534 1,746 1,851

2,4062,656 2,907 3,013

1,0151,338

1,616 1,7001,855

2,0822,306 2,369

3,794

4,000

4,2134,682

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2011 2012 2013 LTM

FAL Luxury & Bridge Other Casual Fast Fashion

10,183

14,14212,788

11,610

Footwear, Accessories and

Luggage (FAL) and Luxury

segments currently make up

53% of total stores

Fast fashion, Luxury and

FAL driving forward sales

growth

Store productivity is highest

in Luxury and Bridge

category stores

17 December 2014

SSI Group, Inc.

(SSI.PS / SSI PM) 7

Figure 10: SSI store level productivity is led by Luxury

with the highest merchandise ASP… Last 12 months through 3Q 2014; net sales per sqm (P)

Figure 11: … and the smallest average store size Last 12 months through 3Q 2014; sqm


Medium-term deflationary impact on store

productivity

Unlike mono brand retailers where store and selling space growth is primarily a function of

physical/geographic penetration, for SSI there is an added element. The first wave of store

growth for SSI is brand fragmentation—introducing new brands into the Philippines market.

Given the nascent stage of incomes and modern format retail penetration, there are many

western, international and Asian brands that are still not present domestically. Each new

brand that comes to the market requires its own standalone stores; therefore, this leads to

higher store unit growth and more overlap than would be the case for a mono brand

retailer. SSI is adding new brands at a quickening pace. Of the 38 brands that have been

added since the end of 2011, 22 have come in 2014. We expect another five-six brands to

be added before the end of the year. This growth in the brand portfolio has significant

impact on new store growth.

The second stage of store and selling space growth for SSI is the physical penetration of

existing brands. This is more akin to mono brand retailers. Given the high weighting of

SSI's total store count to metro Manila (Figure 12), penetration in Tier 2 cities and rural

markets will likely be a catalyst to high levels of store and selling space growth going

forward. In metro Cebu, the second most populous metropolitan area in the Philippines, as

of June 2014, SSI was only operating 25 stores, representing less than a quarter of its

brands (23).

233,988

168,874

128,254

96,068 93,128

Luxury Casual Fast Fashion FAL Other

SSI store productivity = 144,063

574

151 146

102 98

Fast Fashion Other Casual FAL Luxury

SSI average store size = 214

The first wave of store

growth for SSI comes from

introducing new brands into

the Philippines market…

…with the second wave of

growth from increasing

penetration in Tier 2 cities

and rural markets

17 December 2014

SSI Group, Inc.

(SSI.PS / SSI PM) 8

Figure 12: Considerable runway of growth from outside metro Manila 30 June 2014 store count


This is not to suggest that metro Manila is fully penetrated for existing brands in the

portfolio. There is plenty of growth potential for existing brands within metro Manila, and

this will likely be driven by commercial space development. For example, the 2015

opening of Solaire Mall (to be operated by Ayala Land Inc.) will add 5,000 sq m for

premium and luxury brands retail. We expect SSI to open as many as 52 new Luxury

stores in 2015 versus 37 in 2014, and this is in large part due to the new commercial

space availability at Solaire Mall.

Because the size of the brand portfolio and existing store penetration have been rising

concurrently, annual store count and selling space growth have been 17% and 20%,

respectively. Average store size is increasing 3% annually due to growth in the Fast

fashion category, and Luxury stores becoming larger. Store count and selling space

growth have outpaced annual sales growth of 12%. Putting this all together leads to

deflationary pressures on store productivity (Figure 13). This has been the case since

2012 whereby sales per sq m have declined 11% from Ps151,912/sqm in 2012 to

Ps134,589/sqm in the past 12 months.

Metro Manila

519

Luzon (ex. Metro

Manila)

58

Visayas

35Mindanao

60Total stores = 672

Located in 68 major malls

587 free-standing stores85 shop-in-shops

58 new stores opened YTD

Metro Manila market not yet

fully penetrated as we

expect SSI to open as many

as 52 new Luxury stores in

2015

This increase on annual

store count and selling

space has had a

deflationary impact on store

productivity…

17 December 2014

SSI Group, Inc.

(SSI.PS / SSI PM) 9

Figure 13: A combination of new brands coming to the market and rising physical

penetration of existing brands has had a deflationary impact on store productivity Sales per sq m (P)


We expect this dynamic to continue at least for the next two years (We discuss this in

more detail later in the report). However, when modern format retail penetration in the

Philippines reaches the 40% threshold, it will be an indication of much greater brand

fragmentation (choice) and stronger physical breadth. At this time, one should expect

retailers that are gaining in relevance to deliver rising store productivity.

A differentiated competitive force

Retailing by its very DNA will never be uncompetitive, and specialty retailing in the

Philippines is no different. One could even argue that competitive forces are more intense

as brand fragmentation is rising at a quick pace, offering consumers more choice, and the

availability of commercial space is rising. Established and new retailers alike will be vying

for greater competitiveness in the face of the large opportunity.

Therefore, the relevance of a retailer comes down to differentiation. Differentiation is all

about delivering a unique experience to the target customers. Differentiation can take

many shapes—merchandising, branding, pricing, location, breadth of selection, customer

service, loyalty programmes and/or store format. No one is more important than the other,

but it all comes down to delivering on what the promise to consumers is and meeting, or

better yet, exceeding their expectations. Competitiveness in retailing is all about executing

on the consumers' perception.

Key differentiating factors of SSI are:

(1) Perception. SSI's brand portfolio is the first component of differentiation because the

well-known international brands set the stage for perceptions of the Filipino consumer.

Partnering with the brand owners and being the first to introduce the brands in the

Philippines is a key competitive advantage. And as we discussed earlier, it is not in the

brand owner's best interests to change the local partner because volatility in local

execution can permanently impair a brand's perception. Therefore, when SSI brings

brands to the Philippines, these agreements can be very long lasting and tied to the

global awareness.

(2) Location. SSI is one of the most important tenants to mall and commercial developers

in the Philippines. With 655 stores, 103 brands and expected selling space growth of

20%-plus per year, developers are highly motivated to work with SSI. It provides SSI

243,

603

191,

431

154,

220

102,

657

97,1

89

233,

988

168,

874

128,

254

96,0

68

93,1

28

Luxury Casual Fast Fashion FAL Others

2013 LTM

-4%

-12%

-17%

-6% -4%

…which we expect to

continue at least for the next

two years

Differentiation is key for

retailers in the face of

intense competition

SSI is differentiated in the

Philippines due to strong

brand perception, prime

locations, flexible

merchandising, efficient

logistics and broad

customer service and loyalty

programmes

17 December 2014

SSI Group, Inc.

(SSI.PS / SSI PM) 10

with unique leverage when dealing with landlords. This is something very rare when

compared to other Asian markets. One would be hard pressed to find a retailer with

the same type of control or dominance in key retail locations. For example, at

Greenbelt 4 and 5 in Makati (Manila CBD), SSI occupies a substantial portion of the

retail space through its multiple formats. Actually, both the malls were developed

based on the specific demand of SSI to roll-out its store concepts. Going forward, all

developers that are building new mall and commercial space should have SSI in mind

when planning and leasing, in our view. This provides advantages in site selection,

design and fit-out and leasing costs/terms.

(3) Merchandising. SSI operates a brand-centric organisational structure where

dedicated brand teams are responsible for the management and execution within the

brand. When it comes to merchandising, SSI's buyers, most often, have full autonomy

when it comes to volumes and mix. This is important because it allows them to not

only tailor the merchandising to the unique preferences of the Filipinos, but also take

into consideration wealth, incomes, climate and cultural differences.

Few brands adopt the "push" model whereby they impose mandates on

merchandising mix, volumes and delivery schedules. Brand owners are more often

than not keen to avoid this because it downplays the importance of local market

knowledge. This is a reason why we have not yet seen Chanel stores in the

Philippines because they adopt the "push" model where the mandate to a heavier mix

of luxury apparel is unlikely to resonate strongly with the Filipinos.

Because of SSI's brand-centric model, it is able to parlay local market knowledge with

the perceptions of global brands to tailor an offering to the Filipino customers.

(4) Logistics. Efficient inventory management is vital because it directly impacts

customer perceptions with regard to selection and availability. Too little leaves

consumers walking to a competitor, and too much leaves consumers' perception of a

brand in question as to why nobody else is buying it. Therefore, a well-functioning

logistics/supply chain is arguably the most important component of retailing. SSI

operates with eight international third-party freight companies and eight distribution

centres in metro Manila. The logistics function is integrated in the company's ERP

system, which receives daily data from the retail point-of-sale (POS) system to track

sales and inventory flows. An efficient supply chain is also important for retailers,

including SSI, to deliver on the pricing promise to consumers.

SSI also recently setup a 720 sq m central kitchen in metro Manila with approximately

70 employees that will supply the company's growing list of food service offerings. The

standards of the central kitchen are in line with "TWG" brand positioning, and can be

very important to the growing prepared foods offering in FamilyMart.

(5) Customer service and loyalty programmes. With approximately 6,400 employees,

and 4,706 or 74% being store-level/customer facing, training is vital to SSI's success.

The target customer is mid-to high-income group, aged 31 to 50 and predominately

females. These are the more discerning or discriminating consumers in the Philippines

and have high expectations on customer service.

SSI relies heavily on its international brand partners for product and service training.

This is a key differentiation relative to local retailers who do not have the same level of

training experience. Through its shared services, SSI can leverage its scale when

training store-level employees.

SSI also has a CRM database with ~88,000 customers that can be directly targeted

according to their unique preferences and/or needs. In the Luxury segment, SSI draws

heavily on its customer database to offer personalised buying and shopping, advance

buying, invitations to special events and buying trips/fashion shows abroad. All these

services bolster customer loyalty.

17 December 2014

SSI Group, Inc.


The company has also introduced "SSI Life", which is an internet and mobile

marketing site where it can promote brands and special events. It is not a transactional

site for e-commerce but rather digital marketing to increase awareness of its formats.

SSI plans on hiring ~1,600 new employees over the next 12 months with the majority

being store-level; so having the infrastructure to train new personnel so that the

customer service proposition remains intact is a key competitive edge.

As a result of its tangible competitive advantages in the Philippines retail market, SSI is by

far the leading specialty retailer with a store base that is more than 4x larger than the No.

2 player (Figure 14). It is also fair to say that SSI has the most prominent brand portfolio

among its competitors.

Figure 14: SSI has the largest and most widely recognisable brand portfolio in the Philippines

Retail group # of stores 2013 sales (P mn) Key brands

SSI Group, Inc 672 12,788 106 brands (104 international and two owned brands). See Figure 1 for key brands list

Suyen 162 6,685 La Senza, Karen Millen, Aldo, Charles & Keith, CC Double O, Celio, CPS Chaps, Fox,

American Eagle, Cotton On, Chopard, Lyn, Pedro, Call It Spring, Repetto

Primer 175 159 Bratpack, Flight001, General Grind, Ladybag, Res / Toe / Run, The Travel Club, Sneakpeek

Robinsons Retail

(RRHI.PS) 83 921

Topshop, Topman, Ben Sherman, Miss Selfridges, Dorothy Perkins, Warehouse, Basic

House, Coast London, Shana, G2000, River Island

Vogue Concepts 43 575 EverNew, Etam, Promod, Parfois, Yves Rocher

Retail Specialists 37 294 Florsheim, Naturalizer, Mayoral, Justice

SM Retail 9 n.a. Forever 21

Note: Robinsons Retail figures are just for the Specialty Retail component.

Source: Company data, Euromonitor

Specialty retailers do compete directly with department stores because it is a different

store format, where much of the merchandising is overlapping. Therefore, we would be

remiss to not include competitors such as SM Retail, Robinsons Retail and Rustan's,

which have 39%, 6% and 1.7% share, respectively, of the domestic department store

market (Figure 15).

Figure 15: Department store category market share

2011 2012 2013

SM Department Store 39.1% 39.2% 38.7%

Robinsons

Department Store

6.3% 6.4% 6.3%

Rustan's Department

Store

1.5% 1.5% 1.7%

Metro 1.3% 1.4% 1.5%

Marks & Spencer

(SSI)

0.8% 0.9% 0.9%

Others /

Independents

51.0% 50.5% 50.9%

Source: Euromonitor

Specialty retailers are often called "category killers" as they take share from more

traditional formats such as department stores. Going forward, we expect this to continue to

be the case in the Philippines with specialty retailers growing considerably faster. Higher

incomes and wealth coupled with more sophisticated shoppers bode well for the sharper

focus of specialty retailers.

Long-term call option from new formats

In addition to the specialty retail operations, SSI has expanded into two new formats

(convenience stores and department stores) through JVs with Ayala Land.

SSI has the most prominent

brand portfolio among its

competitors and 4x larger

store base

SSI's competitors include

not just other specialty

retailers but Philippines

department stores as well

17 December 2014

SSI Group, Inc.


FamilyMart could drive long-term value creation

In 2012, SSI entered the convenience store (CVS) segment by partnering with Ayala Land

(ALI.PS, P34.8, OUTPERFORM, TP P37), FamilyMart (8028.T, ¥4,535, OUTPERFORM,

TP ¥5,300, MARKET WEIGHT) and Itochu Corp (8001.T, ¥1,240, NEUTRAL, TP ¥1,310,

MARKET WEIGHT). Philippine FamilyMart (PFM) was established to develop, manage

and operate the FamilyMart convenience store franchise in the Philippines.

FamilyMart holds a 37% economic interest in PFM, while SSI and Ayala Land both have

30% and Itochu 3%. The PFM operations are headed by a general manager who is

seconded by both SSI and Ayala Land. The general manager is assisted by a head

consultant and two additional consultants—all from Japan—who are appointed by

FamilyMart. The consultants advise the operations team on merchandising, store

construction and corporate planning. This structure has similarities to Philippine Seven

Corp (SEVN.PS) whereby Seven & i Holdings (3382.T, ¥4,299, OUTPERFORM, TP

¥5,000, MARKET WEIGHT) which owns the 7-Eleven brand has appointed operations and

finance managers from Japan in the domestic operations.

The first FamilyMart store was opened in the Philippines in 2013 and as of September

2014, PFM was operating 66 stores in greater Manila (Figure 16). Currently the number

has surpassed 80 and the total is expected to be 91 at the end of the year. The stores

average 150 sqm and carry a wide selection of food (packaged and prepared) and non-

food (HABA, household) items. Food (higher margin) comprises 82% of sales, with ready-

to-eat accounting for 38%.

Figure 16: From a start in 2013, PFM has opened 66 stores in greater Manila

Location # of FamilyMart stores

Makati 21

Quezon City 15

Ortigas/San Juan/Mandaluyong City 12

Bonifacio Global City 5

Manila 3

Pasay/Paranque 6

Cavite 4

Total 66


PFM's target is 150 by the end of 2015 (60 new stores); however, we believe 100 new

stores will be added in both 2015 and 2016. Our expectation of a quicker rollout is based

on the remarkably low penetration of chain CVS stores in the Philippines, and having the

store launch process in place. Philippine Seven Corp. targets to roll out 250-300 stores

per year.

Why convenience stores?

We believe there is an immense opportunity for two players to control (>50% combined

market share) the CVS segment in the Philippines, and with 7-Eleven off to a head start

with 1,169 stores (60% of total), the race is for the No. 2 position (Figure 17). Over the

past 12 months, many new CVS competitors have emerged and existing players have

upped their ambitions. The rationale is fairly simple—the Philippines has the second-

lowest CVS penetration in Asia, and as incomes, wealth and time consciousness rise,

consumers will visit CVS stores more frequently. While the news flow about new entrants

has been high, there remains nobody with scale other than 7-Eleven; therefore, the

second position is widely up for grabs.

SSI's entry into convenience

stores through a JV with

FamilyMart, Ayala Land and

Itochu in 2012 is a long-term

value driver

There are 66 FamilyMart

stores in greater Manila at

the end of Sep. 2014

We expect PFM expansion

to occur at a quicker pace

than management's

guidance

7-Eleven is the dominant

convenience store operator

in the Philippines, but there

is ample opportunity for the

No. 2 position due to low

CVS penetration in the

country

17 December 2014

SSI Group, Inc.


Mini-stop which is owned by Robinsons Retail (RRHI.PS) has the second-largest store

count, but store network is older and smaller with more limited merchandise offering. This

presents an opportunity for the likes of FamilyMart to come in with newer, larger and better

merchandised stores, in our view.

Figure 17: Opportunity for a bona-fide No. 2 to emerge

CVS Brand & Operator Current store count

7-Eleven (Philippine Seven Corp.) 1,169

Mini-stop (Robinsons Retail Holdings) 440

All Day (Villar Group) 150

FamilyMart (SSI 30% / Ayala Land 30% / FamilyMart 37% / Itochu 3% JV) 66

SM Retail/Alfamart 3

Lawson (Puregold 70% / Lawson 30% JV) 0

Total 1,828


From a sales perspective, 7-Eleven is naturally dominant given its store count, but

interestingly FamilyMart stores are showing early signs of being more productive than its

peers because market share is higher than store count share (Figure 18).

Figure 18: The Philippines modern chain convenience store market share 2013

Source: Euromonitor

Sari-sari (meaning 'variety') stores are the dominant convenience format across the

Philippines as they are present in all cities, communities and virtually all streets. These are

privately owned shops (or shops within a shop) that provide basic packaged food and

necessity items. The value-add of Sari-sari stores, other than location, is that they offer

low prices by breaking whole packs into per-serving units and also provide social financing

by allowing the consumers to run a "tab" and pay at a later date.

Long and sizeable runway of growth for the Philippines convenience store sector

Across APAC, there are 71 CVS per million people. However, this ignores the wide

spectrum of penetration from Japan down to Vietnam. Developed and more developed

Asian economies have >400 CVS per million people. The Philippines has 18 CVS per

million people (Figure 19). Thailand with incomes that are 2x higher than that of the

Philippines has a penetration rate that is 8x higher at 131 CVS per million. There is a

linear relationship between CVS penetration and incomes; therefore, as the Filipinos'

incomes are expected to rise 7% annually over the next seven years, it is natural to expect

CVS penetration to follow suit (Figure 20). Given that the Philippines is starting from an

7-Eleven

56.00%MiniStop

27.10%

FamilyMart

0.70%

Circle K

0.10%

San Miguel

Foodshop

0.00%

Other (All

Day, etc.)

16.10%

2013 modern chain convenience store sales = US$555 mn

Robinsons Retail's Mini-stop

is currently the No. 2 player

but with an older store

network and limited

merchandise

Traditional sari-sari stores

are the dominant

convenience format in the

Philippines

Linear relationship between

CVS penetration and

incomes implies CVS

penetration in the

Philippines will rise as

incomes rise 7% p.a. over

the next seven years

17 December 2014

SSI Group, Inc.


under-penetrated position now, the growth rate in new stores and sales for this category

over the next five years will likely outpace that of all other major retail categories. This is

not dissimilar to other emerging markets in ASEAN—Thailand is the only one that appears

to be over-penetrated relative to its income level.

Figure 19: The Philippines has the second-lowest CVS

store penetration in APAC… # of CVS per million people

Figure 20: …and is well under-penetrated relative to

incomes

Source: Euromonitor, IMF Source: Euromonitor, IMF

Rising penetration of chain convenience stores will likely result in the category being the

fastest growing going forward. Cannibalisation of Sari Sari stores is inevitable, and there is

likely a franchising opportunity to convert Sari Sari owners into modern format

convenience store operators. This is similar to what we have seen in markets such as

Thailand. Over the next three years, the chain convenience store sector in the Philippines

is expected to grow by 24% annually, which is nearly 3x faster than that of the overall retail

category (Figure 21).

Figure 21: Outlook for the Philippine chain convenience store sector

Source: Euromonitor

455

419 413

195

133 131

66 62

22 18 9

Japa

n

Kor

ea

Tai

wan

Hon

g K

ong

Sin

gapo

re

Tha

iland

Indo

nesi

a

Mal

aysi

a

Chi

na

Phi

lippi

nes

Vie

tnam

Japan

KoreaTaiwan

Hong Kong

SingaporeThailand

IndonesiaMalaysia

ChinaPhilippines

Vietnam0

50

100

150

200

250

300

350

400

450

500

0 20,000 40,000 60,000C

VS

/ m

illio

n p

eople

GDP per capita (US$)

446

555

682

885

1,064

21%

24%23%

30%

20%

10%8%

0%

8% 8%

0%

5%

10%

15%

20%

25%

30%

35%

0

200

400

600

800

1,000

1,200

2012 2013 2014E 2015E 2016E

Chain Convenience Store Sales (US$ mn; lhs)

Chain Convenience Store Sales YoY Growth (rhs)

Philippines Retail Sector YoY Growth (rhs)

We expect chain

convenience stores to be

the fastest growing retail

category going forward, with

inevitable cannibalisation of

sari-sari stores

17 December 2014

SSI Group, Inc.


Value enhancer rather than earnings driver

FamilyMart has a more profound impact on SSI's valuation than it will on earnings for the

next three years.

Given SSI's 30% economic stake in PFM, it is accounted for as an equity investment on

the P&L. In 2013 and 1H14, PFM had losses of P68 mn and P130 mn, respectively. SSI's

proportionate losses were P20 mn in 2013 and P23 mn in 1H14. PFM is not expected to

be profitable until it reaches 300 stores, which should take at least three years. Therefore,

losses will likely continue until 2017 or 2018.

This does not mean that the FamilyMart business is value destructive for SSI. On the

contrary—because emerging as the No. 2 player by building out a network of new stores

with broader merchandising and under the FamilyMart banner will be value accretive. CVS

operations with scale often generate higher returns-on-capital than other formats due to

lower capital costs, higher merchandise velocity and favourable working capital

management. Narrowing the peer group down to pure-play convenience store operators,

the average EV/store is US$709,000. Apply this to 165 PFM stores by the end of 2015, the

implied EV would be US$140 mn or US$34 mn proportionate share to SSI.

Interestingly, PFM stores are more productive than 7-Eleven stores through 1H14. Sales per

store of P12.8 mn compare with P9.2 mn at 7-Eleven. This is due to location concentration in

favour of PFM as 100% of the stores are located in greater Manila. Productivity levels will

come down as the company opens more stores (cannibalisation in Manila) and expands to

lower-income Tier 2 cities and rural markets. Therefore, we would not subscribe to applying

a premium per store valuation on PFM relative to 7-Eleven, because we believe the 40%

productivity gap is not sustainable. Over the long run, PFM could achieve a higher

productivity relative to 7-Eleven based on locations, merchandising and store operations, but

it is much too early to forecast this with a high degree of confidence.

Wellworth presents a less compelling value-enhancement opportunity

SSI entered a 50/50 JV with Ayala Land called SIAL Specialty Retailers, Inc. in 2013 to

develop, manage and operate Wellworth department stores in the Philippines. Wellworth is a

new department store concept targeting middle market and below consumers. This is unique

because SM Retail, Robinsons Retail and Rustan target mid-income and above consumers.

Rustan is the only department store in the Philippines to target the luxury market.

In April 2014, the first Wellworth store was opened in Fairview Terraces (Ayala Land

development) in Quezon City. Store size is 15,000 sqm with 78% of sales coming from

concessionaire and the remaining 22% from private label merchandise. The store is

operating at a loss and will likely continue to do so for the foreseeable future. SSI accounts

for the Wellworth JV as an equity investment.

Plans are to open two more locations in 1H15 with the first being a 6,500-8,500 sqm store

in Up Town Center (Quezon City) and a similar-sized store in Santa Rosa City, which is in

the southern Philippines. Given the target consumer, this format should theoretically work

better in Tier 2 cities and rural markets than the competitors.

Our bullishness on Wellworth is tempered by the fact that the department store category is

growing slower than overall retail sales as consumers are showing an early willingness to

shop at specialty stores, e-commerce risk will only intensify, competition is heavy with the

top two players controlling 50% of the market, and other Asian markets have proved that

concession rates are constantly under pressure. Concession rates are currently 25-30%

versus high teens in larger Asian markets. All in all, we believe investment in Wellworth

has a deflationary impact on SSI's overall returns-on-capital, and poses a risk to long-term

value. Therefore, it is important it keeps the expansion and capital allocation to a minimum.

The risk is low with SSI following the footsteps of Mitra Adiperkasa (MAPI.JK, Rp5,325.00,

UNDERPERFORM, TP Rp3,400.00) whose high-end and capital-intensive Harvey Nichols

and Galleria Lafayette stores in Jakarta have been heavy drags on profits, cash flows and

We do not expect Philippine

FamilyMart to be profitable

until 2017 or 2018…

…but the investment will still

enhance value due to higher

returns-on-capital relative to

other formats

Wellworth department store

is a 50/50 JV between SSI

and Ayala Land, targeting

middle market and below

consumers

We are less bullish on

Wellworth as the

department store category is

slower-growing and facing

heavy competition

17 December 2014

SSI Group, Inc.


returns-on-capital. SSI will not compete directly with Rustan Department Stores, in our

view.

Property development is best kept to a minimum

Given that a high return on invested capital (ROIC) is one of the most compelling

characteristics of SSI for investors, heavier investment in property development is not

something we would like to see going forward.

SSI has one retail development called Central Square in Fort Bonifacio. The company

entered into a 20-year land lease with Ayala Land. The development is 9,741 sqm of

leasable space whereby three above ground floors will be occupied by several of SSI's

leading brands, while the two basement levels will be anchored by Rustan's Supermarket.

This is the location of the first Pottery Barn in Asia. Rustan's Supermarket targets mid- to

high-end consumers with one of the most upscale food retail offerings in the country. This

suits well to the project. Lastly, the fourth floor is owned by Ayala Land and is used for a

cineplex (with the first 4-D theatre in the Philippines) and food court.

Capital cost of the project for SSI is approximately P800 mn and is expected to generate

an IRR of 14%. The appeal of the project is two-fold: (1) more commercial space in a fast-

growing location of metro Manila to showcase key brands; and (2) it should generate

healthy returns that are in excess of its cost of capital.

We cannot rule out SSI from being opportunistic when it comes to additional retail

development projects in the future, but given the capital intensity and dilution it would have

to overall ROIC, we believe management has a limited appetite for this type of investment.

Additionally, there is enough commercial space development in the pipeline by major

developers to satisfy SSI's demand for space. Over the next three years, we expect the

top five developers (SM Prime, Ayala, Robinsons Land, Megaworld and Finvest) to add

2.3 mn sqm of new leasable commercial real estate, which is 20x larger than SSI's current

selling space and more than 40x the amount of incremental selling space we expect the

company to add over the same time period (Figure 22).

Figure 22: Top five mall developers in the Philippines have development pipelines that

can accommodate SSI's increasing demand for retail space Total leasable GLA of SM Prime, Ayala Land, Robinsons Land, Megaworld and Finvest ('000 sqm)

Source: Company data, Credit Suisse estimates

8,6629,312

10,23610,920

2013A 2014E 2015E 2016E

Heavier investment in

property development would

have a negative impact on

ROIC

SSI currently has one retail

development with 9,741

sqm of leasable space

We believe management

has a limited appetite for

further retail developments

due to the capital intensity

and ROIC dilutive nature

17 December 2014

SSI Group, Inc.


Evolution of a nascent industry "High expectations are the key to everything"

Sam Walton, Founder of Wal-Mart, world's largest retailer

Expectations surrounding the nascent Philippines retail industry are naturally high given

the enormous potential that lies ahead due to the combination of rising incomes, rising

wealth, more sophisticated/discerning consumer preferences and remarkably low modern

format retail penetration. The Philippines is transitioning from a traditional retail market to

one that will mirror more developed Asian and global markets where modern format chains,

international brands and larger and higher merchandising breadth formats will be best

positioned to match consumers' evolving demands.

Over the next three years, the Philippines' retail industry is expected to grow at an annual

pace of 7.4% (more details in Figure 36 on page 18), which is higher than Private

Consumption Expenditure (PCE) growth forecast of 5.8% by Credit Suisse economist

Michael Wan (Figure 23). PCE growth has witnessed acceleration to 6% from the historical

3.2% average since 1999. The Philippines is entering the fourth consecutive year of PCE

growth exceeding 5%, and we believe this will persist through at least 2016.

Retail sales growth should also continue to exceed nominal wage growth due to rising

remittances and rising consumer debt.

Wealth and expectations of wealth are both very important drivers of consumer confidence

and retail sales growth. From Figure 24:, we can see that sharp increases in wealth in

2010 and 2011 help spur 9% annual retail sales growth over the following four years.

Wage growth is only the stage 1 of a consumption resurrection. The more profound and

long-term driver is wealth because it can have a more permanent impact on spending

patterns. Rising property prices, financial asset values, small business values, and

overseas investments will push future expectations higher, and that is what matters the

most.

Figure 23: Retail sales growth has outpaced both PCE

and nominal wage growth… YoY change

Figure 24: …but rising wealth has the more profound and

longer-term impact YoY change

Source: CEIC, Credit Suisse estimates Note: Wealth includes financial and non-financial assets net of debt.

Source: CEIC, Euromonitor, Credit Suisse Global Wealth Databook

Over the next three years, we expect wealth growth in the Philippines to exceed annual

income growth of 7.4%.

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

Retail Sales Growth PCE Growth Nominal Wage Growth

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

2008 2009 2010 2011 2012 2013

Retail Sales Growth Wealth per Adult Growth

High growth expectations for

nascent Philippines retail

industry due to

underpenetration and rising

wealth

We expect Philippines retail

industry to grow 7.4% p.a.

over the next three years

Rising wealth is the key

long-term driver of retail

sales growth

17 December 2014

SSI Group, Inc.


After nearly a decade of an underperforming consumption market relative to the rest of

Asia whereby PCE growth was ~3%, the consumption resurrection that commenced in

earnest in 2012 has sustained and is pacing ahead of regional peers (Figure 25). The

Philippines remains one of our most preferred consumption markets in NJA. And this is

backed by the second-highest wealth growth story in NJA since 2005 (Figure 26). As we

mentioned earlier, wealth growth is the more profound driver of long-term sentiment

improvement by consumers.

Figure 25: The Philippine's above-NJA-average PCE

growth is a function of… 2015E PCE growth (YoY)

Figure 26: …the second-strongest wealth growth story in

NJA Wealth per adult (US$) CAGR, 2005-13

Source: Credit Suisse estimates Note: Wealth includes financial and non-financial assets net of debt.

Source: Credit Suisse Global Wealth Databook

Sweet spot of the curve

The sweet spot or the steepest part of a typical consumption S-curve begins at a

GDP/capita of ~US$5,000 and extends to ~US$14,000 (Figure 27). This is where per-

capita consumption accelerates at the quickest pace along the entire curve and

consumers make an aggressive switch from staples/basic needs to discretionary items.

Once in the sweet spot, spending on discretionary items should outpace that of

staples/basic needs. Spending begins to plateau at around US$25,000 GDP/capita as

saturation becomes more prevalent across many categories.

The Philippines' GDP/capita is US$2,765 (2013); therefore, the bulk of the spending is

skewed towards staples/basic needs such as food, basic personal care, fuel, basic apparel

and shelter. Over the next five years, the Philippines will enter the sweet spot with a

GDP/capita of US$4,600 in 2020, according to IMF forecasts. We would not be surprised

to see spending accelerate, and the shift to more discretionary to actually become evident

in the years leading up to 2020 because technological advancement and connectivity can

actually shift the curve to the left.

Retailers such as SSI will benefit the most from the Philippines moving along the S-curve

because it is essentially 100% discretionary in nature. Therefore, as the consumer

approaches the critical US$5,000 GDP/capita level, modern-format specialty stores'

growth will likely outpace traditional and modern-format supermarkets/hypermarkets and

department stores. The superior growth will spur new competition, and that is where the

first-mover advantage will become apparent. SSI's strong portfolio of brands, large store

network and merchandising experience would be very well positioned to leverage when

consumers hit the sweet spot of the curve.

8.0%

5.8% 5.6%5.2%

4.5%3.3%

2.8%

China India Philippines Malaysia Indonesia Korea Thailand

Avg. = 5.0%

17.7%

11.7%10.8% 10.7%

8.0%7.1% 4.9% 4.4%

3.4%

1.3%

Mya

nmar

Phi

lippi

nes

Chi

na

Indo

nesi

a

Mal

aysi

a

Vie

tnam

Tha

iland

Indi

a

Kor

ea

Pak

ista

n

Avg. = 8.0%

The Philippines remains one

of our favourite consumption

markets in NJA

Per capita consumption

accelerates at GDP/capita

levels of ~US$5,000

Philippines will enter the

sweet spot of accelerated

spending in 2020

SSI will benefit from rising

GDP/capita in the

Philippines due to its

consumer discretionary

nature

17 December 2014

SSI Group, Inc.


Figure 27: Typical S-curve—the Philippines will be entering the sweet spot of the curve within the next three-five years

Source: Credit Suisse estimates, IMF

Because Filipino consumers still reside to the left of the S-curve and are spending more

heavily on staples/basic needs, growth rates in the next couple of years should be skewed

to formats offering these goods—namely supermarkets, hypermarkets and convenience

stores. During these "early years", convenience stores should generate the highest level of

growth at 24% annually, versus 11% for hypermarkets and <10% for all other major

formats (Figure 28).

Figure 28: Convenience stores should deliver the highest growth over the next three years The Philippines retail sales growth: historical vs forecast

Source: Euromonitor, Credit Suisse estimates

This does support SSI's recent foray into the convenience store sector through the

FamilyMart JV. As we have mentioned earlier, the growth rates coupled with the ability to

earn higher ROICs in this category should be an important value driver for the company.

India

'13

Philippines

'13

India

'20FIndonesia

'13

PH '20FThailand '13

China '13

Indonesia '20F

Thailand '20F

Malaysia '13

China '20F

Malaysia '20F

Taiwan '13

Korea '13

Taiwan '20F

Korea '20F

0 10,000 20,000 30,000 40,000

Per

cap

ita c

on

su

mp

tio

n

GDP per capita (US$, current)

Sweet spot of accelerated spending

6%

5%

6%

11%

8%

16%

13%

6%

7%

8%

9%

9%

11%

24%

Apparel & Footwear Retailers

Health & Beauty Retailers

Electronics & Appliances Retailers

Supermarket

Department Stores

Hypermarket

Convenience Stores

3Y Fwd. CAGR 3Y Hist. CAGR

Convenience stores should

generate the highest levels

of growth in the next couple

of years

17 December 2014

SSI Group, Inc.


Modern retail upgrade

Without a doubt, there is a rising penetration story unfolding in the Philippines and it

centres on the rollout of modern-format retail. Consumers moving up the wealth and

income pyramids will increase demand for modern formats. Modern formats should gain

share at the expense of traditional formats because they offer superior merchandise

breadth, pricing, locations and customer service (training, loyalty programmes, payment

options, return/exchanges).

Modern grocery penetration is the highest among all the major categories, and it only

stands at 27% in the Philippines or fourth lowest in APAC. The APAC average is 47%

(Figure 29).

In 2013, the annual per capita spending in the measured retail channel was US$725 (ex-

sales taxes). Of this, 48% or US$347 per capita was spent in modern format chains.

Essentially less than 50% of measured retail sales is in modern format, and given

measured retail is likely less than half of the economy-wide retail spending, it is easy to

see how modern-format retail penetration for all categories is less than 25%.

Figure 29: Modern-format retail in the Philippines is still

underpenetrated vs the region Modern food retail as a percentage of total food retail sales

Figure 30: Modern-format spending by retail category Percentage of annual per-capita spending in modern-format retail. Spending per capita = US$347 (ex-taxes)

Source: Euromonitor Source: Euromonitor

Specialty stores make up just over 50% of modern-format retail sales (Figure 30), and we

believe the trend of consumers going to specialty stores more frequently will continue

because this is where international brands can be found and customer service is superior.

This is a key trend for SSI's future growth.

Urbanisation and the rise of Tier 2 cities should drive rising penetration

Urbanisation, wage growth, wealth growth and modern-format retail penetration are all

positively correlated and not mutually exclusive.

The Philippines has one of the higher urbanisation rates in NJA at 49% versus the regional

average of 40%, but is still far below the developed market average of 75%. In 2050, the

Philippines is expected to have the fourth-highest urbanisation rate in NJA (Figure 31).

Some 47 mn people currently reside in urban locations (20,000 or more inhabitants) of the

Philippines. This is expected to more than double to 100 mn people or 69% of the total

population in 2050. The same number of people as the entire population now will be

urbanised in the Philippines in 2050. Yes, 2050 is a long way away, but it highlights the

pressures that will be placed on infrastructure including that of retail. With denser

populations, convenience will become a greater priority for Filipino consumers.

79%

74%

72%

70%

64%

62%

53%

44%

41%

27%

16%

4%

2%

Japan

Australia

South Korea

Singapore

China

Hong Kong

Taiwan

Thailand

Malaysia

Philippines

Indonesia

Vietnam

India

Modern

Grocery

34%

Modern

Apparel

Specialty

8%

Modern Electronics

Specialty11%

Modern

Health &

Beauty

Specialty13%

Modern

Home

Specialty

13%

Modern

Sports &

Leisure Specialty

8%

Modern

Department

Stores

13%

Modern

Luxury

Stores0%

Modern retail formats should

gain share as consumers

become wealthier

The Philippines modern

format penetration remains

below the APAC average

Urban population expected

to more than double by

2050, driving modern-format

retail penetration

17 December 2014

SSI Group, Inc.


Figure 31: Rising urbanisation across NJA should drive modern-format retail penetration higher

Source: Population Division of the Department of Economic and Social Affairs of the United States

Secretariat, Credit Suisse research

Urbanisation cannot solely occur in metro Manila. Over the next few decades, urbanisation

will occur at a faster rate in Tier 2 and Tier 3 cities. Given that retailers' store networks

have very low exposure to rural markets (Figure 32), this is where store and selling space

growth will be the quickest. Development of the BPO industry in cities such as Davao and

Cebu will drive incomes and greater demand for modern format retail.

Figure 32: Retailer store networks have yet to grasp the

urbanisation opportunity… Percentage of stores in metro Manila

Figure 33: …partially due to where the commercial space

is built Percentage of GLA, by region, of top five commercial developers (Ayala Land, SM Prime Holdings, Robinsons Land Corp, Megaworld, Finvest Land)


Retailers are positioned to capture the higher incomes in metro Manila, but need to start

positioning their store networks to where the growth is. Growth rates are already showing

to be superior in key markets outside of metro Manila. Mindanao has the highest

GDP/capita growth (Figure 34) while all of Luzon, Visayas and Mindanao are seeing

average family incomes grow faster (Figure 35).

83%

72%

47% 49%44%

40%

34%30%

36%

30%

91%88%

73%69%

66%63%

60% 59% 59%54%

Korea Malaysia China Philippines Indonesia NJA Thailand Vietnam Pakistan India

2010 Urbanization Rate 2050F Urbanization Rate

35%41%

45% 46% 49%

77%

Metro Manila

54%Luzon 28%

Visayas 11%

Mindanao 7%

Total mall area: 9.6mn sqm

Urbanisation to occur at a

faster rate in Tier 2 and 3

cities over the next decades

Income growth rates are

higher in key markets

outside of metro Manila

17 December 2014

SSI Group, Inc.


Figure 34: Metro Manila leads in GDP per capita levels but

superior growth can be found rurally... GDP per capita and GDP growth, by region

Figure 35: …and the same goes for household incomes Household income by region

Source: CEIC Source: CEIC

Retail sales growth forecasts

Putting together the income story, the wealth profile, rising urbanisation and remarkably

low modern format retail penetration lead to a compelling growth industry for the long term.

With a measured retail industry of US$71 bn (25% of GDP) growing at 7.4% annually over

the coming years, incremental annual spending of US$5.3 bn should provide more than

enough opportunity for listed retailers including SSI (Figure 36). To achieve rising

relevance (market share), differentiation is vital. SSI is in the segment of the industry and

categories that will see the highest long-term growth rates once Filipino consumers hit that

sweet spot of consumption. Prior to this, the strong brand portfolio and expansion into

convenience stores will be catalysts to market share gains.

Figure 36: Growth forecasts for the Philippines retail

YoY change 2010 2011 2012 2013 2014E 2015E 2016E

Retail sales 9.3% 8.8% 9.8% 7.8% 6.4% 8.4% 8.5%

Modern grocery 15.2% 13.2% 16.9% 13.3% 2.4% 8.0% 7.2%

Modern specialty stores 7.9% 8.5% 9.2% 6.6% 8.0% 9.4% 9.5%

Department stores 10.7% 9.7% 10.1% 6.4% -0.2% 7.7% 8.0%

Traditional grocery 7.7% 7.3% 7.7% 7.0% 0.4% 8.5% 8.8%

Macro Indicators

PCE 3.35 6.30 6.63 5.68 5.40 4.80 5.00

Nominal wage 3.36 6.04 4.74 2.20 2.40 4.00 4.00

Real GDP 7.63 3.91 6.80 7.18 5.70 5.50 6.00

CPI 3.80 4.72 2.90 2.93 4.30 3.70 3.30

Source: CEIC, Euromonitor, Credit Suisse estimates

SSI is expected to grow its top line at a rate of 2.4x higher than overall retail sales growth

through 2016 (Figure 37).

0

50

100

150

200

250

300

4%

5%

5%

6%

6%

7%

7%

8%

8%

9%

Ove

rall

Me

tro

Ma

nila

Luzo

n e

xM

an

ila

Vis

aya

s

Min

dan

ao

Th

ou

sa

nd

of

pe

so

s

%yo

y

Real GDP Level per capita (RHS) Real GDP Growth (2012)

379

220

1921782.1%

4.5% 4.7% 4.6%

0.0 %

0.5 %

1.0 %

1.5 %

2.0 %

2.5 %

3.0 %

3.5 %

4.0 %

4.5 %

5.0 %

0

50

100

150

200

250

300

350

400

Metro Manila Luzon Visayas Mindanao

Avg Family Income (P '000s) 3Y Hist. CAGR

We expect SSI to grow its

top line 2.4x faster than

overall retail sales growth of

7.4% p.a. over the next

three years

17 December 2014

SSI Group, Inc.


Figure 37: SSI's market share gains expected to accelerate SSI top-line growth relative to the Philippines retail sales growth


1.4x 1.3x

2.5x 2.4x

1.9x

2012 2013 2014E 2015E 2016E

17 December 2014

SSI Group, Inc.


Outperforming its peers SSI's productivity and profitability are superior to its

most relevant peers

To gauge the quality of a retailer, we focus on six core metrics centred on relevance,

productivity and profitability. Relevance is key to determine the longevity of the retail

format/concepts, while productivity and profitability are gauges of how well management

executes in retail model(s) and the rewards for shareholders. When comparing retailers,

static measures at a particular point in time are important, but even more poignant for us is

the three-year delta going forward. These metrics are:

(6) Relevance

a. Top-line growth—total sales growth and relative to industry growth

b. Same-store sales growth (SSSG)

(7) Productivity

c. Sales per sqm

d. EBITDA per sqm

e. FCF per sqm

(8) Profitability

f. Return on invested capital (ROIC)

On all of these metrics, SSI compares very favourable to its most relevant comparables in

the Philippines and in the region. Our relevant comparable list is comprised of:

■ Mitra Adiperkasa (MAPI.JK, Rp5,100.00, UNDERPERFORM, TP Rp3,400.00),

Indonesia's leading specialty retailer, representing more than 150 brands through a

store network of 1,800 stores. Retail concepts are grouped into Department stores,

Fashion, Footwear, Active/Sports, Food and beverage, and Kids. Key brands include

ZARA, Lacoste, TUMI, Samsonite, Loewe, Pull & Bear, Stradivarius, Topshop,

Topman, Swarovski, BCBGMAXAZRIA, Brooks Brothers, Adidas, Ecco, Payless

ShoeSource, Nine West, Steve Madden, Camper, Barbie, SOGO, Debenhams,

Starbucks, Domino's Pizza, Burger King, Cold Stone, Godiva and Pizza Express.

There is considerable overlap with SSI's brands in the fashion and apparel category;

however, a key difference is virtually no exposure to luxury (except for Loewe), and a

high contribution from F&B. MAPI's revenue split is 62% specialty stores, 23%

department stores, 13% food and beverage, and 2% other.

■ Robinsons Retail (RRHI.PS): The Philippines second-largest listed retailer by sales

(US$1.6 bn in 2013) but the largest by store count with 1,180 at the end of June 2014.

The company primarily operates under its own banners in the supermarket (Robinsons

Supermarkets), department store (Robinsons Department Store), convenience store

(MiniStop), drug store (South Star Drug) and do-it-yourself (Handyman Do it Best)

categories. RRHI also does operate 217 specialty stores that represent ~9% of its total

sales. Supermarkets is the largest category representing 48% of sales in 2013 (Figure

38). Its 37% of total sales comes from discretionary categories vs 100% at SSI.

The key international brands for the specialty stores are Topshop, Topman, Miss

Selfridge, Shiseido, Ben Sherman, Toys "R" Us, Daiso Japan and G2000.

We focus on relevance,

productivity and profitability

to gauge the quality of

retailers

We compare SSI with Mitra

Adiperkasa in Indonesia,

Robinsons Retail, and

Puregold

17 December 2014

SSI Group, Inc.


Figure 38: Breakdown of Robinsons Retail revenue and store count Percentage of 2013 total revenue


■ Puregold Price Club, Inc (PGOLD.PS): The Philippines largest listed retailer with

2013 sales of US$1.7 bn, but the fourth-largest store count of 213 as at June 2014.

Puregold competes in the hypermarket and supermarket categories with its own

banners including Puregold Price Club (full-service), PuregoldJr. (neighbourhood

store), Puregold Extra (discount) and S&R Membership Shopping (wholesale club). Its

stores are located across the Philippines, but similar to all retailers, nearly half or 46%

are located in metro Manila.

Of the three comparable retailers, MAPI is the most comparable in terms of business

model and strategy, while RRHI is the most comparable for the Philippines market.

Stacking SSI up against these peers, relevance metrics rank below, but both productivity

and profitability are well ahead of the others (Figure 39).

Supermarkets48%

Department Stores

18%

DIY 11%

Convenience

6%

Drug

Stores

9%

Specialty Stores

8%

2013 total sales = Ps67.3bn

2013 store count = 1,064

91 Supermarkets

38 Department stores126 DIY stores

386 Convenience stores239 Drug stores184 Specialty stores

SSI ranks ahead of its peers

in terms of productivity and

profitability

17 December 2014

SSI Group, Inc.


Figure 39: SSI stacked up against its most relevant peers Bold figures represent category leader

SSI Group,

Inc.

Mitra

Adiperkasa

Robinsons

Retail

Holdings

Puregold Price

Club, Inc.

Symbol SSI.PS MAPI.JK RRHI.PS PGOLD.PS

Share price (lcy) 9.13 6,000 64.65 35.00

Market cap. (US$ mn) 676 847 2,029 2,224

2013 total stores 597 1,779 1,064 213

2013 sales (US$ mn) 292 932 1,586 1,725

2013 EBITDA (US$ mn) 37 113 119 151

Relevance

Three-yr hist. top-line CAGR 13% 27% 18% 36%

3-yr hist. top-line CAGR rel. to industry 1.5x 2.7x 2.0x 4.1x

Three-yr avg. same-store sales growth -1.0% 13% 3.3% 2.0%

Productivity

2013 sales per sqft (US$) 310 142 226 448

2013 EBITDA per sqft (US$) 39 17 17 39

2013 FCF per sqft (US$) (112) (9) (2) (16)

Profitability

2013 ROIC1 7.0% 10.0% 7.1% 11.3%

2013 EBITDA Margin 12.1% 12.1% 7.5% 8.8%

1 SSI adjusted for IPO impact by including IPO proceeds into invested capital calculation.


MAPI more aggressive in same-store sales growth calculation

MAPI's same-store sales growth (SSSG) is demonstrably higher than that of its Philippines

peers for one key reason—the way it is calculated. SSI and its domestic peers calculate

SSSG more in line with the industry standard, which is to include stores that have been

open for two years in the calculation. MAPI on the other hand includes stores when they

enter their second year. This is fundamentally different because all new stores have an

accelerated ramp-up from year 1 to 2; therefore, when including stores that are in their

second year, the SSSG figure is inflated due to the accelerated ramp-up.

For SSI, new stores reach existing store levels of productivity in year 4, and ramp up on

the following basis: 20% in year 1, 60% in year 2, 75% in year 3 and 100% in year 4. From

this we can see that if SSI's SSSG calculation included second-year stores, it would

capture the ramp-up from 20% to 60%, which is a 3x increase in growth. With 18% and

24% annual growth in stores and selling space (sqm) from 2013 to 2016E, including

second-year stores, in the SSSG calculation for SSI would have a profound inflated impact

on the reported number. We prefer the SSSG calculation whereby stores are included

after they have been open for two years because it is more comparable across companies,

regions, and is more conservative.

Pushing relevance AND value higher

All too often retailers focus on the relevance component of the equation, which simply

entails opening new stores and increasing selling space faster than competitors. This

mono-focus is often at the expense of profitability and ultimately value to shareholders.

We believe SSI is unique because it can deliver both because its store expansion and

selling space growth is accretive to overall ROIC due to the category and brand mix, solid

execution, low cost inflation, and efficient capital deployment.

MAPI's SSSG ranks higher

due to difference in

calculation

SSI is unique because it can

deliver both relevance and

profitability

17 December 2014

SSI Group, Inc.


Over the next three years, SSI is expected to deliver superior growth/improvement in the

key performance metrics largely due to its more favourable portfolio mix of retail formats

and lower cost inflation pressures. Portfolio is skewed much more heavily to the higher

productivity and higher-margin luxury and premium brands while having very slight

exposure to the lower productivity and lower margin F&B formats. Cost inflation in the

Philippines is lower than that of Indonesia for both of the key cost components—labour

and commercial rents. We forecast labour and commercial rent inflation of ~5% annually

for SSI versus 20% annually for MAPI. This has a profound impact on the profitability

given that for SSI, labour and commercial rent costs are a combined 25% of total costs or

51% of total costs excluding merchandise.

SSI is accomplishing what is often elusive to retailers—pushing relevance AND profitability

higher at the same time. In retailing, deploying capital towards new stores and expanding

the footprint is the relatively easier part. Opening new stores that are driving productivity

and ROIC incrementally higher is more challenging. Retailers that are driving relevance

and value higher at the same time deserve to trade at higher valuations than those that

are eroding value through their store expansion.

Comparing SSI to MAPI is a perfect example of this (Figure 40). We expect SSI to grow

annual store count and selling space by 18% and 24% respectively over the next three

years. This is nearly 2x higher than that of MAPI. However, when we look at productivity

and profitability metrics, SSI is translating the relevance expansion into greater

shareholder value by driving EBITDA/sqm, EBITDA margins and ROIC higher over the

next three years. A lot of this has to do with the cost inflation differential we mention above,

but we cannot ignore the superior category/brand mix at SSI over MAPI.

Figure 40: Over the next three years, we expect SSI to do a superior job of becoming

more relevant and creating more value for shareholders 2013A to 2016E

SSI Group, Inc. Mitra

Adiperkasa

Symbol SSI.PS MAPI.JK

Share price (lcy) 9.13 5,325

Market cap. (US$ mn) 676 710

Three-yr total store growth 17.2% 5.8%

Three-yr total selling space growth 23.8% 5.7%

Three-yr EBITDA growth 35.9% -1.8%

Three-yr net income growth 44.0% -0.6%

Relevance

Three-yr forward top-line CAGR 17.5% 17.4%

Three-yr forward top-line CAGR rel. to industry 2.0x 2.0x

Three-yr forward avg. SSSG 3.0% 12.0%

Productivity

Three-yr sales per sqft CAGR -5.1% 11.1%

Three-yr EBITDA per sqft CAGR 8.9% -7.1%

Three-yr FCF per sqft CAGR -61.3% -41.9%

Profitability

Three-yr ROIC change1 1,152bps -150bps

Three-yr EBITDA margin expansion 1,470bps -410bps

1 SSI 2013 ROIC is adjusted for IPO impact by including IPO proceeds into invested capital calculation

Source: Credit Suisse estimates

SSI to achieve superior

growth over the next three

years due to favourable

portfolio mix and lower cost

inflation pressures

17 December 2014

SSI Group, Inc.


SSI valuation Our 12-month target price for SSI is P11.30. We use three approaches to value SSI

(Figure 41):

Enterprise value-to-invested capital versus ROIC-to-WACC (60% weighting);

Comparable enterprise value-to-EBITDA (25% weighting); and

Comparable price-to-earnings (15% weighting).

We add a value of P0.49/share to our target price for Philippines FamilyMart, which we

believe has considerable value potential over the long term, which is not captured in either

the EV/EBITDA or P/E approaches because SSI's 30% stake is accounted for using the

equity method.

For our comparable valuation analysis, we focus on the core peers of Mitra Adiperkasa

(MAPI.JK, Rp5,100.00, UNDERPERFORM, TP Rp3,4000.00), Robinsons Retail

(RRHI.PS) and Puregold Price Club, Inc (PGOLD.PS) with reference to the overall

consumer sector in the Philippines.

We do not consider Trinity (0891.HK) or IT (0999.HK) as comparable companies because

Hong Kong is not a nascent retail industry like that of the Philippines (rather the opposite)

where both top-line and cost trends are fundamentally different. Plus, their competitive

positioning is structurally different (weaker) than that of SSI in their core markets.

Our TP implies 2015E EV/EBITDA and P/E multiples of 12.6x and 25.7x, respectively, in

line with its relevant peer group. There is safety in our target multiples since SSI offers

superior margins, growth and ROIC characteristics than its peer group.

Figure 41: Credit Suisse valuation of SSI Group, Inc. All valuations are based on 2015E

Valuation approach Weighting Target

multiple

('15E)

Peer

average

Implied equity

value (P mn)

Value of PH

FamilyMart

(per share)

Implied

value per

share

EV/IC vs ROIC/WACC 60% 2.3x 2.2x 35,649 n.a. 10.76

EV/EBITDA 25% 13.5x 12.4x 39,548 0.49 12.43

P/E 15% 28.0x 26.6x 36,667 0.49 11.56

Credit Suisse 12M target price 11.30

Implied valuation multiples

2013A EV/EBITDA 17.7x



2013A P/E 38.2x

2014E P/E 26.1x

2015E P/E 28.6x

2013A P/B 8.5x

2014E P/B 4.1x

2015E P/B 4.8x


At our target price of P11.30, relative valuations are as follows:

■ 2015E EV/EBITDA of 12.8x is in line with the relevant peer group, but at a 32%

discount to the highest valuations in the Philippines consumer sector (URC and JFC);

Our valuation range for SSI

of P10.19-13.6 is based on

three approaches: EV/IC vs

ROIC/WACC, EV/EBITDA,

and P/E

17 December 2014

SSI Group, Inc.


■ 2015E P/E multiple of 28.6x is a PEG ratio of 1.6x and above the 1.2x average of the

relevant peer group due to the vastly superior growth profile; and

■ 2015E P/B multiple of 4.8x is above the relevant peer group average of 3.2x but in line

with the Philippines consumer sector average of 4.4x.

EV/IC vs ROIC/WACC best captures management's prowess at delivering for

shareholders

We believe the best valuation approach for all retailers is EV/IC vs ROIC/WACC because

when returns are often overlooked/ignored in the pursuit of top-line growth, this metric

appropriately captures management's prowess of delivering a more relevant retail

business while creating value. The inverse is also true. It also captures all non-

consolidated investments such as SSI's investments in FamilyMart and Wellworth. While

these investments are yielding losses in the near term because of their start-up stage, they

clearly have value over the long term—especially in the case of FamilyMart.

P/E and EV/EBITDA come up short when it comes to gauging management's capital

allocation prowess, and in a capital-intensive industry such as retailing, this would be

fundamentally wrong in determining the valuation

Excess returns ultimately determine and justify

valuations

SSI's long-term valuation will ultimately be determined by the excess returns (ROIC less

WACC) that the company can deliver while executing its growth story. The question that

inevitably comes up is: why consumer companies should trade at high multiples (absolute

and relative) and is this sustainable? The short answer is 'yes'. However, not all consumer

companies are created equal. So in emerging markets, the growth opportunity that comes

about from low penetration rates coupled with rising incomes is apparent, but what is less

apparent is a company's ability to capitalise on this while pushing excess returns higher.

The companies that can generate not only high excess returns, but widening excess

returns going forward will trade at sustainably high absolute and relative valuations.

The relationship between valuation and excess returns is not linear—it is exponential.

Consumer companies that can deliver those superior excess returns should see a

multiplier effect on their relative valuations. Figure 42 highlights this relationship as: the

highest excess returns and valuations across NJA are in India and Indonesia, while it is

straightforward to see why China and Korea have the lowest valuations in the sector.

We believe EV/IC vs

ROIC/WACC is the best

valuation approach for

retailers since it takes

returns into account

SSI's long-term valuation

will be determined by

excess returns

Companies that deliver

superior excess returns see

multiplier effect on relative

valuations

17 December 2014

SSI Group, Inc.


Figure 42: Consumer sector valuations are directly linked to excess returns NJA consumer sector; 2014E

Source: Credit Suisse estimates, IBES

Figure 42 is a static picture based on current excess return capabilities of consumer

stocks across the region. We also prefer to focus on valuations relative to change in

excess returns over the next three years. Given that we continue to be in a fairly benign

interest rate environment globally and in Asia, the primary driver of changes in excess

returns will be operating performance of the companies or change in ROIC. Across the

NJA consumer sector, we expect weighted average ROIC to increase by 232 bp through

2016 from a level of 16.5% in 2013. Looking at valuations this way actually helps us

determine where there are market inefficiencies as the equities could be mispriced relative

to their forward excess return change.

We expect India and the Philippines consumer stocks to generate the strongest

improvement in ROIC over the coming three years, while Thailand and Indonesia are the

two lowest (Figure 43). Healthy consumption growth coupled with more efficient capital

utilisation allows India and the Philippines to post the strongest improvement. The

opposite is the case for Thailand and Indonesia as consumption growth risks coupled with

heavy capital deployment lead to weaker ROIC trends.

But when looking at how the market is valuing the excess return improvement (Figure 44),

the Philippines stands out as well under-priced while Thailand, Indonesia and Malaysia are

among the most over-priced for their excess return trend. We continue to believe that the

market underestimates how strong consumption trends, rising capacity utilisation, savvy

capital allocation and evolving business models can drive ROIC higher in the Philippines.

The Philippines remains one of the most attractive excess return stories across the NJA

consumer landscape.

India

Thailand

Philippines

Indonesia

Taiwan

Hong Kong

Malaysia

China

South Korea Singapore0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

1.0x 1.5x 2.0x 2.5x 3.0x 3.5x

Ent

erpr

ise

valu

e to

inve

sted

Cap

ital

Excess Return (ROIC vs WACC)

India and the Philippines

consumer sector should see

the strongest ROIC

improvement in the next

three years

The Philippines consumer

sector appears under-priced

relative to its excess return

levels

17 December 2014

SSI Group, Inc.


Figure 43: India, Taiwan and the Philippines should drive

the strongest excess return improvement in NJA

consumer… 2013 to 2016E ROIC change

Figure 44: …but clearly the market is under-pricing the

Philippines relative to Indonesia and Thailand 2014E

Source: Company data, Credit Suisse estimates Source: Credit Suisse estimates

Retail sub-sector is no exception…

The relationship between valuations and excess returns is no different in the retail sub-

sector as it is for the consumer sector as a whole Figure 45). The one exception is that the

relationship is even more exponential because high-ROIC or high-excess return retailers

are not all that common. The industry is capital intensive and new stores often take three

to four years to reach maturity. Therefore, in emerging markets and nascent retail

industries, many early-stage retailers are in investment mode and not yet proving the

capability of generating high excess returns. This is obviously a valuation opportunity for

investors in companies that can quickly move up the excess return scale. The movement

will likely have a more profound impact on valuations than in other consumer sub-sectors.

Once again, the market is under-pricing the forward excess return change for retailers in

the Philippines as they are expected to post the third-highest expansion but trade at the

third-lowest multiple (Figure 46). Retailers in India, Indonesia and Thailand look most over-

priced relative to the change in their ROIC going forward.

729bps

573bps 551bps

418bps

254bps

160bps

-24bps -51bps -82bps

-209bps

Indi

a

Tai

wan

Phi

lippi

nes

Chi

na

Sou

th K

orea

Sin

gapo

re

Mal

aysi

a

Indo

nesi

a

Tha

iland

Hon

g K

ong

India

Taiwan

Philippines

China

South Korea

SingaporeMalaysia

Indonesia

ThailandHong Kong0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

-400bps -200bps 00bps 200bps 400bps 600bps 800bps

Ent

erpr

ise

Val

ue to

Inve

sted

Cpa

ital

3yr Change in ROIC

Excess return has more

profound impact on

valuations for retailers than

other consumer sub-

sectors…

…with the Philippines

retailers also under-priced

17 December 2014

SSI Group, Inc.


Figure 45: Retail equities are no exception, but the

relationship between valuation and excess returns is

much more exponential

Figure 46: Filipino retailers are undervalued relative to

their three-year forward ROIC profile


…and neither is the Philippines

Consumer stocks in the Philippines follow the same path as the rest of the region whereby

valuations are highly correlated to excess returns (Figure 47). With excess returns being

high and widening going forward, the Philippine consumer stocks should and can continue to

trade at high valuations. They way to push valuations higher is to expand the excess returns.

Figure 47: Valuations of consumer stocks in the Philippines is not different than the rest

of NJA – excess returns is the primary catalyst and justification 2015E


Valuation support from SSI's superior excess returns

Relative to what we deem as the most relevant peer group, we expect SSI to generate the

highest excess returns in 2015 with a ROIC/WACC ratio of 1.9x versus the peer group at

1.2x (Figure 48). RRHI, PGOLD and the overall Philippine consumer sector are expected

to expand ROIC at a rate well below of the 1,152 bps expansion at SSI. SSI's market

Thailand

Indonesia

Taiwan

Hong Kong

India

China

South Korea

Singapore

Philippines

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

8.0x

0.0% 10.0% 20.0% 30.0% 40.0%

Ent

erpr

ise

Val

ue to

Inve

sted

Cap

tal

2014E ROIC

Thailand

Indonesia

Taiwan

ChinaSouth Korea

Singapore

Philippines

India

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

8.0x

-1,500bps -1,000bps -500bps 00bps 500bps 1,000bps

Ent

erpr

ise

Val

ue to

Inve

sted

Cap

ital

i3yr ROIC Change

Universal Robina

Emperador Inc.

Alliance Global

Jollibee

LT Group

Travellers International

Bloomberry Resorts

Belle Corporation

Puregold

Robinsons Retail

SSI

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

0.4x 0.6x 0.8x 1.0x 1.2x 1.4x 1.6x 1.8x 2.0x 2.2x

Ent

erpr

ise

Val

ue to

Inve

sted

Cap

ital

Excess Return (ROIC vs WACC)

The Philippine consumer

stocks can continue to trade

at high valuations due to

rising excess returns

SSI will generate higher

excess returns in 2015

relative to its peers

17 December 2014

SSI Group, Inc.


share capture and margin expansion is ahead of the peers and primarily explains the

superior performance.

Conversely, the valuation (EV/IC) of SSI relative to the excess returns is 10% below the

peer group. Our target price conservatively implies 2.4x EV/IC vs ROIC/WACC, which is a

slight premium to the peer group. This leaves more expansion potential should the returns

surprise to the upside.

Figure 48: Despite a superior return profile, SSI's valuation relative to excess returns is 10% below the relevant peer

group

SSI Group,

Inc.

Mitra

Adiperkasa

(MAPI)

Robinsons Retail

Holdings

Puregold Price

Club, Inc.

PH consumer

average

Peer

average


Share price (lcy) 9.13 5,325 78.00 38.40

Market cap. (US$ mn) 676 697 2,420 2,380

2013 ROIC1 7.0% 13.0% 8.1% 10.7% 9.5% 10.3%

2014E ROIC 21.7% 10.0% 9.6% 12.1% 11.8% 10.8%

2015E ROIC 16.5% 11.3% 11.8% 13.7% 13.7% 12.6%

3yr fwd ROIC change 1,152bps -115bps 625bps 496bps 551bps 390bps

2013 ROIC/WACC 1.0x 1.4x 0.7x 1.0x 0.8x 1.0x

2014E ROIC/WACC 2.6x 1.1x 0.9x 1.1x 1.0x 1.0x

2015E ROIC/WACC 1.9x 1.2x 1.1x 1.3x 1.2x 1.2x

2013 EV/IC na 3.7x na na 2.9x 3.3x

2014E EV/IC 4.3x 2.8x 1.6x 3.0x 3.3x 2.8x

2015E EV/IC 3.7x 2.7x 1.6x 3.0x 3.0x 2.7x

2013E EV/IC vs ROIC/WACC na 2.6x na na 3.4x 3.0x

2014E EV/IC vs ROIC/WACC 1.6x 2.2x 2.4x 2.6x 3.2x 2.7x

2015E EV/IC vs ROIC/WACC 2.0x 2.3x 1.9x 2.3x 2.5x 2.2x

1 SSI adjusted for IPO impact by including IPO proceeds into invested capital calculation

Source: Company data, Credit Suisse estimates, IBES

SSI deserves a premium relative to its peers

SSI stacks up favourably versus the most relevant peers with superior EBITDA margins,

EBITDA growth and EPS growth going forward (Figure 49). Financial risk (leverage) is

higher than the peer group, but not at a level that we are concerned with given the 36%

annual EBITDA growth we forecast from 2013 to 2016E.

Once again, the superior performance and growth profile is not reflected in the valuation

as SSI is currently trading at a 10% 2015E P/E discount and 13% EV/EBITDA discount to

the peer group. This presents investors will multiple expansion potential, something that is

rather rare in the Philippines consumer sector.

17 December 2014

SSI Group, Inc.


Figure 49: SSI is trading at a discount to its relevant peer group despite superior profitability and growth

SSI Group, Inc. Mitra Adiperkasa

(MAPI)

Robinsons Retail

Holdings

Puregold Price

Club, Inc.

PH Consumer

Average

Peer average


Share Price (lcy) 9.13 5,325 78.00 38.40

Market Cap. (US$ mn) 676 697 2,420 2,380

EV/EBITDA Valuation

2013A EV/EBITDA 9.5x 15.0x 18.9x 12.5x

2014E EV/EBITDA 12.5x 13.1x 15.9x 14.5x 15.2x 14.3x

2015E EV/EBITDA 10.5x 11.5x 12.8x 12.5x 12.6x 12.0x

2013A EBITDA Margin 12.1% 12.1% 7.5% 8.8% 19.8% 12.1%

2014E EBITDA Margin 18.5% 7.3% 7.5% 8.4% 22.3% 12.9%

2015E EBITDA Margin 18.3% 7.3% 7.7% 8.4% 24.0% 13.1%

2013A EBITDA Growth 26.5% 6.8% 66.5% 42.0% 33.1% 35.0%

2014E EBITDA Growth 78.1% -27.3% 20.4% 13.2% 14.8% 20.8%

2015E EBITDA Growth 18.8% 14.0% 25.0% 14.6% 42.1% 22.0%

2014E Net debt-to-Equity 69.4% 95.2% -21.4% -2.6% -12.5% 23.3%

P/E Valuation

2013A P/E 27.0x 20.1x 26.9x 27.4x 24.6x

2014E P/E 29.5x 47.0x 30.2x 24.9x 29.3x 32.2x

2015E P/E 23.3xx 36.1x 24.9x 21.7x 23.6x 25.9x

2013A EPS Growth 23.5% -24.3% 128.8% 28.8% 15.4% 34.5%

2014E EPS Growth 6.8% -42.6% 27.2% 8.0% 5.5% -20.1%

2015E EPS Growth 26.7% 30.2% 21.2% 14.7% 27.9% 21.4%

2013A PEG 1.3x nmf 0.2x 0.9x 1.8x 0.9x

2014E PEG 4.4x nmf 1.1x 3.1x 5.3x 3.3x

2015E PEG 0.9x* 1.2x 1.2x 1.5x 0.8x 1.1x

2015E P/B 2.4x 3.0x 2.4x 2.9x 4.5x 3.1x

* Excludes impact of primary shares issued in 2014. Source: Company data, Credit Suisse estimates

As a result of SSI having superior operating metrics to its peer group, we believe a

premium valuation is warranted. This provides both downside support and upside to our

target valuation as premium multiples are not reflected. If the company can deliver positive

earnings surprises in the first year after its IPO, we and the market would be more likely to

reflect premium valuations commensurate with its superior profitability and forward growth.

We feel EV/EBITDA is more appropriate and comparable across the peer group than that

of P/E. However, neither capture the long-term value creation from the FamilyMart joint

venture because earnings are equity accounted and near-term earnings are weighed

down by start-up costs and low scale.

FamilyMart valuation: Reflects long-term value creation

To determine a value of FamilyMart at its start-up stage, we use EV/store from regional

convenience store operators. For the convenience store format, this approach is relevant

because store sizes are all roughly the same at 120-150 sqm. For other retailers, we would

not use a similar approach because store sizes within specific categories can vary widely.

Convenience store operators trade at an average EV of US$655,000 per store (Figure 50).

Premium valuation

warranted due to SSI's

superior operating metrics…

We value FamilyMart on

regional EV/store average

17 December 2014

SSI Group, Inc.


Figure 50: EV/store valuation of Asian convenience store operators

Ticker Company Name Mkt. CAP

(US$ mn)

EV

(US$ mn)

Stores EV/store

(US$ '000s)

8028.T FamilyMart 3,787 2,930 23,622 133.8

3382.T Seven & i Holdings 33,410 33,935 24,964 1,274.6

2651.T Lawson 6,962 6,632 12,106 514.9

CPALL.BK C.P. All PCL 12,725 10,131 7,965 1,185.6

AMRT.JK Sumber Alfaria 1,644 1,647 8,557 220.5

2912.TW President Chain Store 7,747 7,025 7,714 913.3

SEVE.KL 7-Eleven Malaysia 655 582 1,600 270.6

SEVN.PS PSC 940 934 1,150 725.2

Average EV/store (US$ '000s) 654.8

Weighted Avg. (US$ '000s) 1,034.5


To be conservative, we take the simple average of US$650,000, and apply it to our

forecast of 191 FamilyMart stores in the Philippines at the end of 2015. We determine

SSI's proportionate share in the value of Philippines FamilyMart to be US$36 mn or

Ps0.49 per share (Figure 51).

Figure 51: Philippines FamilyMart (PFM) valuation

2015E number of stores 191

Comparable EV per store (US$ '000s) 650.00

Implied EV of PFM (US$ mn) 124.2

Less: Assumed 2015E net debt (US$ mn) (3.0)

Implied equity value of PFM (US$ mn) 121.2

SSI equity stake 30.0%

SSI equity value (US$ mn) 36.4

SSI equity stake (P mn) 1,618.0

SSI value per share (P) 0.49


17 December 2014

SSI Group, Inc.


SSI Group financial outlook Three-year sales and net income CAGR of 18% and

44%, respectively

We forecast the company's net sales to grow by an average of 18% for the next three

years (2013-16E), which is has accelerated from the 2011-2013 net sales CAGR of 12.1%

(Figure 52). For 2014E alone, we expect net sales to grow faster and reach P15 bn or a

YoY growth rate of 16%. In terms of product segment, Fast Fashion should account for a

larger percentage of total net sales, growing from 33% in 2013 to 39% in 2016 as we

forecast it will grow the fastest at a 24.5% CAGR during the three-year period over 2013-

2016E (Figure 53). On the other hand, Luxury and Bridge should account for the smallest

contribution to total net sales at 12% by 2016E (from 13% in 2013), posting an average

growth rate of 12.9% p.a. over 2013-2016E.

Figure 52: We expect SSI's net sales to accelerate… P mn

Figure 53: …on the back of expansion in all categories

with Fast Fashion leading the way


The growth in net sales for the next three years should be driven mainly by the increase in

store count and gross selling area (GSA). We expect the company to boost its number of

stores to 952 by 2016E from 597 in 2013. The end-period GSA (gross selling area) is

expected to reach 185,970 sq m in 2016E from 98,126 sq m last year (Figure 54), which is

mainly on the back of the significant expansion in its Fast Fashion business (72,106 sq m

in 2016E from 30,510 sq m in 2013).

2,406 2,656 2,907 3,200 3,507 4,1891,855 2,082 2,306 2,648 3,006

3,3663,794 4,000 4,2135,194

7,0598,130

1,1131,534

1,746

2,014

2,271

2,596

1,0151,338

1,616

1,797

1,961

2,464

0

5,000

10,000

15,000

20,000

25,000

2011 2012 2013 2014E 2015E 2016E

Others Footwear, Accessories and Luggage Fast Fashion Casual Luxury & Bridge

2013-2016E CAGR 17.5%

2013-2016E CAGR 12.1%

23% 20%

18%16%

33% 39%

14% 13%

13% 12%

2013 2016E

Others Footwear, Accessories and Luggage Fast Fashion Casual

We forecast 18% sales

CAGR for SSI over the next

three years…

…driven by increase in store

count and gross selling area

17 December 2014

SSI Group, Inc.


Figure 54: SSI end-period gross selling area (GSA)


Given the rapid expansion in its retail footprint, the company's net sales per average

selling area is expected to initially decline, in our view. For 2014 alone, we expect net

sales/GSA to decrease to P135,021/sq m from P141,523/sq m in 2013. This should

continue to be the trend for 2015 and 2016 as we expect it to reach P125,083/sq m and

P124,507/sq m, respectively (Figure 55). In general, we assume new stores opened in a

specific year could achieve steady state in terms of productivity by their fourth year in the

system. We model revenue productivity of a new store by assuming a yearly revenue

ramp-up schedule of 20%-60%-75%-100% of previous year's net sales/average GSA per

product segment.

Figure 55: SSI net sales/GSA will bottom in 2016


New store ramp up

In our model, we assume that new stores reach the existing store level of productivity in

four years and ramp up according to: Year 1 (20%), Year 2 (60%), Year 3 (75%) and Year

4 (100%). As a result, the largest contributor to growth will be two-year old stores since

70,260 82,593

98,126 137,406

162,801

185,970

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

2011 2012 2013 2014E 2015E 2016E

158,450

151,912

141,523

135,021

125,083 124,507

100,000

110,000

120,000

130,000

140,000

150,000

160,000

170,000

2011 2012 2013 2014E 2015E 2016E

Sales productivity will

initially decline due to rapid

retail expansion

We assume new stores to

reach mature store

productivity in four years

17 December 2014

SSI Group, Inc.


they ramp up from 20% to 60% in the second year. This is evident by looking at the

attribution of our top-line growth in each of the next three years.

For 2014, 42% of revenue growth should come from two-year old stores, followed by 29%

coming from new stores opened in the same year (Figure 56).

Figure 56: SSI 2014E net sales attribution (P mn)


We expect 2015 net sales growth to be much heavily weighted to two-year old stores

(95%) because of the large number of stores added in 2014 (173) experiencing the largest

ramp-up period (Figure 57). Beginning in 2015, we expect mature stores (open for more

than four years) to show signs of cannibalisation from the new and younger stores.

As we mentioned earlier in the report, since SSI operates a multi-bannered retail strategy,

new store openings have a greater cannibalisation impact than retailers that follow a

mono-banner strategy. For the latter, store expansion is more a function of location

penetration, whereas the former is a function of brand penetration in the market.

Therefore, many of SSI's stores will compete with an existing store.

12,788

14,852

598

860

271 0

336

2013 Net Sales New stores 2yr Old Stores 3yr Old Stores 4yr Old Stores Matured stores 2014E Net Sales

New store openings to have

greater cannibalisation impact

than mono-brand retailers

17 December 2014

SSI Group, Inc.


Figure 57: SSI 2015E net sales attribution (P mn)

Source: Credit Suisse estimates

Gross profit is the key margin driver during periods

of heavy store expansion

We expect the company's gross profit it to reach P11.7 bn in 2016 or a three-year CAGR

(2013-2016E) of 23%, which is slightly slower than the average annual growth rate of

24.1% during the period of 2011-13. Nevertheless, we expect gross profit margin to

improve to 56.5% by 2016 from 49.2% in 2013 (Figure 58). In 2014E alone, we see gross

profit margin improving to 56.2%, mainly as a result of improved purchasing terms with

brand principals as the company starts to benefit from a key initiative it took in the second

half of 2013 to reduce its trade payable days (107.5 days in 2013 versus 219.3 days in

2012). Higher sell-through rates on the back of better management of sales cycles and

optimising the timing and duration of sales discounts should also contribute to

improvement of gross profit margin. Also, rapid expansion in store count may most likely

result in higher purchasing volumes, which could lower the company's average

merchandise procurement costs moving forward. In general, we estimate COGS will only

increase by 11.6% annually for our forecast years of 2013-2016E. We are cautious not to

forecast gross margin expansion in 2015E and 2016E given the much higher inventory

days of 410 forecasted at the end of 2014. Large amount of inventory increases the risk of

more mark-down and promotional activity should there be any shortfalls in merchandising.

14,852

17,804

652

3,033 226 336

(793)

2014E Net Sales New stores 2yr Old Stores 3yr Old Stores 4yr Old Stores Matured stores 2015E Net Sales

Expect 730 bp gross margin

expansion over next three

years from scale and better

sales management

17 December 2014

SSI Group, Inc.


Figure 58: SSI gross profit and gross profit margin trends


Reconciling gross margins with inventory days

Gross margin expansion and inventory days trends must be looked at in conjunction

because one cannot occur without the other. In 2013, SSI essentially swapped accounts

payable for short-term debt in order to secure more favourable purchasing terms from its

vendors. This explains the large working capital usage in 2H13 and the step-up in

inventory days to more than 450 in 1H14 (Figure 59). Vendors are heavily motivated to

shorten their inventory days (especially in Fast Fashion); therefore, if there is an

opportunity to push more inventory into the channel, they will do so. However, this must be

accompanied with financial incentive for the retailer in the form of lower purchasing prices.

We estimate the savings for SSI are nearly 15% of COGS.

Figure 59: Inventory ramp up was to secure lower merchandise costs and for store

expansion


For SSI, this means a considerable step-up in gross margins from 44% in 2012 to 56% in

2014E. This improvement in profitability is not without a cost. The cost is in the form of

4,084 5,100

6,292

8,351

10,041

11,720

40.1%43.9%

49.2%

56.2% 56.4% 56.5%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2011 2012 2013 2014E 2015E 2016E

Gross profit Gross profit margin (GPM)

(3,000)

(2,500)

(2,000)

(1,500)

(1,000)

(500)

0

500

1,000

1,500

200

250

300

350

400

450

500

2011 2012 1H13 2H13 1H14 2H14E 2015E 2016E

Changes in Working Capital (P millions; rhs) Inventory Days (lhs)

17 December 2014

SSI Group, Inc.


carrying more inventory and the risk is in carrying more of the right inventory. Clearly, if the

larger balance of inventory is not purchased correctly, the longer-term risk is that gross

margins deteriorate as the merchandise is marked down and sold on promotion or worst-

case, written off. This places more execution risk on their merchandising capabilities and

ability to be prescient with respect to consumer demands. SSI's strength is in its localised

merchandising, so historically inventory liquidation has not occurred, but at the same time,

their inventory days have never exceeded 450 days as they do now. In order to secure

higher margins, the risk profile of SSI has increased over the past two years. Over the next

three years, we do not expect inventory days to decline back <300, which will be

concerning if top-line trends begin to disappoint.

The large inventory position is also a function of the 24% annual increase in selling space from

2013 to 2016E (Figure 60). Looking at inventory per sq m or per store, the number is expected

to trend down as more stores are opened. 2014 is the year when most new selling space is

expected to open, and it is heavily weighted to the second half. Hence, there will be a large

decline in per sq m and per store inventory levels from 1H14 to 2014E.

Figure 60: Per store and per sq m inventory metrics for SSI are expected to decline


Opex growth a function of store expansion

We forecast EBITDA to grow 36% annually over 2013-16. In terms of EBITDA margin, we

expect this to improve to 18.5% this year (from 12.1% in 2013) before correcting modestly

in 2015E and then expanding again in 2016 to 18.8% (Figure 61). Cost efficiencies should

contribute to margin improvement moving forward, although rent expense and personnel

costs remain the two biggest operating expense items. We forecast rent expense as a

percentage of sales to reach 11.8%/12.0%/12.2% for the next three years (2014/15/16).

We expect store-based personnel costs to average around 7.5% of net sales, while back-

office personnel costs, currently at around 3% of net sales, should decline as economies

of scale are realised.

6,000

6,500

7,000

7,500

8,000

8,500

9,000

9,500

10,000

10,500

11,000

30

35

40

45

50

55

60

65

70

2011 2012 1H13 2H13 1H14 2H14E 2015E 2016E

Inventory/sqm (P 000's; lhs) Inventory per Store (P 000's; rhs)

36% EBITDA CAGR from

2013-16 due to scale

efficiencies more than

offsetting cost inflation

17 December 2014

SSI Group, Inc.


Figure 61: SSI EBITDA and EBITDA margin trends


Through our forecasts horizon (2016), faster growth in rent, labour and other operating

items such as utilities, advertising, store supplies, etc. will likely have a deflationary impact

on margins (Figure 62). That being said, the negative impact as a result of the expansion

strategy could be dwarfed by the growth in scale (top line) and gross margins (Figure 63).

Figure 62: SSI 2014E EBITDA attribution (P mn)

Figure 63: SSI 2015E EBITDA attribution (P mn)

Source: Company data, Credit Suisse estimates Source: Credit Suisse estimates

Three-year net income CAGR of 44%

The combined impact of top-line growth as a result of the company's aggressive store

expansion and margin improvement given cost efficiencies will likely result in net income

growing significantly for the next three years. We forecast net income to reach P1.8 bn by

2016, translating into a 2013-16E CAGR of 44%. We expect net income margin to improve

to 8.8% by 2016E, or a significant jump from the 4.8% level in 2013 (Figure 64).

808 1,223

1,551

2,749 3,266

3,895

7.9%

10.5%

12.1%

18.5% 18.3% 18.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2011 2012 2013 2014E 2015E 2016E

EBITDA EBITDA margin

1,551

2,749 1,016

1,043

(236)

(284)

(341)

2013EBITDA

Toplinegrowth

Grossmargin

expansion

Rentexpenses

Laborexpenses

Otherexpenses

2014EEBITDA

2,749

3,266

1,660 30

(365)

(245)

(564)

2014EEBITDA

Toplinegrowth

Grossmargin

expansion

Rentexpenses

Laborexpenses

Otherexpenses

2015EEBITDA

Rent, labour and utilities

cost to have deflationary

impact on margins

46% net income CAGR over

the next three years

17 December 2014

SSI Group, Inc.


Figure 64: SSI net income and net income margin trends


As a result of the equity capital raising, we estimate that the company's profitability will

initially deteriorate with 2014E return on equity (ROE) and return on assets (ROA)

declining to 18.3% and 8.1%, respectively (from 22.2% and 5.2% in 2013). Nevertheless,

we forecast a recovery in profitability with its ROE reaching 118.8% by 2016E from our

2015E estimate of 17.7% (Figure 65).

Figure 65: SSI return on assets and return on equity trends


Low financial risk profile

In terms of financial leverage, we expect SSI to maintain a net debt position through to the

end of 2016 (Figure 66). We assume an initial debt repayment of P1.5 bn from IPO

proceeds of its short-term loans in 2014E and new one-year bank loans of P1 bn in each

of the ensuing years for working capital requirements. Capital expenditure for additional

stores in the next three years is estimated at P2.9 bn, P1.8 bn, and P1.7 bn, respectively,

as we assume new stores would cost an average of P75,000/sq m (new GSA of 39.280 sq

m, 25,395 sq m, and 23,169 sq m in 2014E, 2015E and 2016E, respectively). Despite

carrying much higher debt levels than historically, the net debt-to-EBITDA ratio is expected

264

462 614

1,034

1,310

1,815

2.6%

4.0%

4.8%

7.0%7.4%

8.8%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2011 2012 2013 2014E 2015E 2016E

Net income Net income margin

3.1%4.8% 5.2%

7.2%8.2%

10.3%

26.8%

33.2%

22.2%

15.8%

16.6%18.7%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2011 2012 2013 2014E 2015E 2016E

ROA ROE

ROE and ROA to rebound

after 2014

Net debt-to-EBITDA

expected to peak in 2014

and then decline to <1x in

2016E

17 December 2014

SSI Group, Inc.


to peak at a reasonable 2.6x before declining to less than 1x in 2016E. SSI is expected to

generate slight positive free cash flow in 2015E (P51 mn) and then expanding to P1.7bn in

2016E.

Figure 66: SSI net debt (cash) profile


(1,346)

(584)

3,959

4,554 4,501

2,788

-1.7x

-0.5x

2.6x

1.7x1.4x

0.7x

-2.0x

-1.5x

-1.0x

-0.5x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

(2,000)

(1,000)

0

1,000

2,000

3,000

4,000

5,000

2011 2012 2013 2014E 2015E 2016E

Net Debt/(Cash) (lhs) Net Debt/(Cash)-to-EBITDA (rhs)

17 December 2014

SSI Group, Inc.


Appendix I: Investment risks ■ Inability to sustain its market position as the leading specialty store retailer in

the Philippines due to intense competition

The non-renewal of current and future contractual relationships with brand principals is

a key risk to the company's ability to sustain its position as the leading specialty

retailer in the country with the broadest portfolio of international brands. Renewal of

brand agreements albeit on a non-exclusive basis or on less favourable terms for SSI

will also impact profitability under the scenario that brand principals start to grant other

parties the right to franchise or distribute their products in the Philippines. At present

SSI has a portfolio of 103 brands across categories with certain relationships with

existing brands principals lasting for more than ten years (e.g., Lacoste, Marks &

Spencer, Polo, Gucci, Prada etc.). But SSI's market position and capacity to maintain

its current portfolio of brands and roll out new ones will continue to be challenged by

stiff competition from other players in the retail industry such as Suyen Corp., Primer

Group, Robinsons Retail, among others, or if brand principals choose to enter the

Philippines on their own. Intense competition for SSI can be experienced on two

levels, first with national and international retailers in the Philippines and other

shopping destinations in the region (e.g. Hong Kong, Singapore, and Bangkok), and

second with brands that compete directly with the brands under SSI's portfolio.

■ Sudden downturn in economic activity both in the Philippines and abroad can

directly or indirectly impact consumer spending on discretionary products.

The deterioration of the country's economic condition will generally impact consumer

spending for discretionary products such as those which SSI mostly offers under its

current portfolio of brand offerings. Revenue growth and profitability of the company is

highly sensitive to economic development here in the Philippines noting that

essentially all of its operations are domestic in terms of geographic exposure.

Additionally, negative economic developments in other countries where there is a

huge concentration of overseas Filipino Workers (OFWs) could also have a

detrimental impact on consumption expenditure growth here in the country as a

significant portion of consumer spending is fuelled by OFW remittances. The top three

sources of OFW remittances by country are the United States (41% of total -0.07%),

Saudi Arabia (~10%) and United Arab Emirates (~7%). OF remittances from the

United States during the January-June 2014 period were relatively flat at -0.7% YoY,

while total OF remittances grew by 5.7% YoY.

■ Execution risks associated to its rapid expansion plans could derail its growth

momentum and impact its profitability adversely.

The company's failure to execute its aggressive expansion plans in, both, its specialty

retailing as well as new ventures into other formats such as convenience stores (i.e.,

Family Mart) and department stores (i.e., Wellworth) can dramatically slowdown the

company's revenue growth prospects given intense competition from other players in

the market across all these platforms. SSI has a specialty store retail footprint of 655

stores across the Philippines as of end-June this year and the company plans to open

at least 100 more new stores in the second half of 2014 and another 100 in full-year

2015. Possible delays in construction completion of new malls or retail centres (570 of

its stores are located inside malls) could impact revenue growth as opening of new

stores are pushed back, taking note also of the recent port congestion issues that

have hounded the traffic situation in Metro Manila. Profitability can also be impacted if

store-related costs such as rent and utilities significantly increase due to higher price

inflation and/or unfavourable lease terms upon renewal of lease contracts considering

that 87% of its aggregate leased selling space are from third parties.

17 December 2014

SSI Group, Inc.


■ Weakness of the Philippine peso versus the US dollar and other currencies

could impact profit margins and financial position.

The possible weakness of the Philippine peso versus other major foreign currencies

such as the US dollar could impact the profit margins of SSI as the company primarily

imports its products from brand principals in the US and Europe. Likewise, foreign

currency denominated assets (i.e., US dollar denominated cash and cash equivalents)

and liabilities (i.e., Euro denominated trade payables and short-term loans payable)

expose SSI to additional foreign currency risk. As at 30 June 2014, the company

anticipated that a +/- 5% change in the exchange rate of the Philippine peso against the

US dollar would result to an increase/decrease of P4.9 mn on its pre-tax income. On the

other hand, a +/- 5% change in the exchange rate of the Philippine peso against the

Euro would result in a decrease/increase of P11.8 mn for its pre-tax income.

■ Significant increase in personnel-related costs and rental costs could drag

down profit margins.

The rapid expansion of the company retail footprint also entails an increase in store

related costs such as personnel salaries and wages, and rent. A significant increase in

headcount alongside wage hikes (and any other changes in the labour and

employment regulations in the Philippines) could negatively impact SSI's profit margin.

At present the company has more than 4,300 permanent staff, of which roughly 60% is

store-based. Profitability can also be impacted if store-related costs such as rent and

utilities significantly increase due to higher price inflation and/or unfavourable lease

terms upon renewal of lease contracts considering that 87% of its aggregate leased

selling space is from third parties.

■ Underfunded retirement benefit plan could require additional capital raising for

the company.

As at 30 June 2014, SSI's defined benefit plan that was available to all regular

employees was underfunded by P234 mn or ~2% of total assets. The underfunded

liability would require 16% of our 2014E operating cash flow assumption to become

fully funded. The defined benefit obligations that are due within the next 12 months

account for 70% of the fair value of plan assets. A 1% change in discount rate or wage

inflation assumptions would impact fair value of plan assets by 71%. In our financial

forecasts, we assume that SSI uses 4% of operating cash flow to fully fund the plan

liability. Risks of increases in benefit plan liability can arise from losses to plan assets,

decreases in the discount rate assumption and/or increases in the wage inflation

assumption. These events would require greater funding from SSI to cover the

underfunded liability.

■ Store openings

Over the next three years, we expect SSI to open 380 new stores (544 including

FamilyMart and Wellworth), which is 64% (86% including FamilyMart and Wellworth)

of the 2013 store count. Therefore, any material delays and/or cancellations resulting

from inability to access commercial space, labour shortage, raw material supply

constraints, legal/regulatory issues surrounding zoning and/or weather can have a

material impact on the company's financial performance and brand perception in any

given period.

■ Unfavourable changes to the regulatory environment such as possible

amendments in The Retail Trade Liberalization Act could impact the revenue

growth of the company.

Any change in the current regulations safeguarding the local retail industry from being

dominated by international or foreign-based multinational companies is a key risk to

the growth and profitability of SSI moving forward. Possible amendments to pertinent

laws that would result in more lenient terms or requirements for foreign entity to enter

17 December 2014

SSI Group, Inc.


the domestic retail market will only make competition stiffer in market segments where

SSI is currently present. Under the Retail Trade Liberalization Act, foreign-owned

partnerships, associations or corporations formed and organised under the laws of the

Philippines may, upon registration with the Philippine SEC and the Department of

Trade and Industry (DTI), or in the case of foreign-owned single proprietorships, with

the DTI, engage or invest in the retail trade business, under the following categories:

Category A—Enterprises with paid-up capital that is less than the equivalent of

US$2,500,000 in Pesos shall be reserved exclusively for Filipino citizens and

corporations wholly-owned by Filipino citizens.

Category B—Enterprises with a minimum paid-up capital that is equivalent to

US$2,500,000 in Pesos, but is less than US$7,500,000, may be wholly-owned by

foreigners except for the first two years after the effectively of the Retail Trade

Liberalization Act (wherein foreign participation was limited to not more than 60%

of total equity).

Category C—Enterprises with a paid-up capital that is equivalent to or more than

US$7,500,000 in Pesos may be wholly owned by foreigners, provided that in no

case shall the investments for establishing a store in Categories B and C be less

than the equivalent of US$830,000 in pesos.

Category D—Enterprises specialising in high-end or luxury products with a paid-

up capital that is equivalent to US$250,000 in pesos per store may be wholly

owned by foreigners.

Any foreign investor may be allowed to invest in existing retail stores. However, the

investment must comply with the paid-up capitalisation requirements enumerated

above. Furthermore, foreign investors who are also retailers and invest in existing

retail stores are required to be pre-qualified with the Board of Investments before they

can buy shares.

No foreign retailer is allowed to engage in retail trade in the Philippines unless all the

following qualifications are met:

1. a minimum of US$200 mn net worth in its parent corporation for Categories B and C, and US$50 mn net worth in its parent corporation for Category D;

2. five retail branches or franchises in operation anywhere around the world unless such retailers has at least one store capitalised at a minimum of US$25 mn;

3. five-year track record in retailing; and 4. only nationals from, or judicial entities formed or incorporated in, countries

which allow the entry of Filipino retailers shall be allowed to engage in retail trade in the Philippines.

17 December 2014

SSI Group, Inc.


Appendix II: Directors and senior management ■ Zenaida R. Tantoco, 68 years old, Chairman and Chief Executive Officer. Ms Tantoco

is also the Chairman and CEO of all of the other Group companies. She has more than 40

years of experience in the retail business serving as the President of Rustan Commercial

Corporation and Rustan Marketing Corporation. In addition, she is a member of the board

of directors of several Rustan's Group companies. Ms Tantoco graduated cum laude from

the Assumption College with a Bachelor of Science degree in Business Administration.

■ Anthony T. Huang, 43 years old, President. Mr Huang is also the President and a

director of all of the other Group companies. He has been with the Group since 1995

and has now over 22 years of experience in the retail business. He also serves as the

Executive Vice President of Rustan Marketing Corporation. He is a member of the

board of directors of Sta. Elena Properties, Inc. Rustan Supercenters, Inc. and

Commonwealth Foods, Inc. Mr Huang graduated with a Bachelor of Arts degree in

Humanities from the University of Asia and the Pacific.

■ Ma. Teresa R. Tantoco, 50 years old, Treasurer. Ms Tantoco is also the Treasurer and a

director of other Group companies. She also serves as the Treasurer and a director of

RPG Distribution Services, Inc., Rustan Marketing Corporation, and is a member of the

board of directors of Rustan Commercial Corporation. Ms Tantoco graduated from John

Cabot International College with a Bachelor of Science degree in Business Administration.

■ Ma. Elena T. Valbuena, 56 years old, Director. Ms Valbuena is also a member of the

board of directors of other Group companies. She is a director of Rustan Commercial

Corporation and serves as the Vice President of Buying for its Home Division. In addition,

she is a member of the board of directors of Rustan Coffee Corporation, Rustan Marketing

Corporation and RPG Distribution Services, Inc. Ms Valbuena graduated from the

Assumption College with a Bachelor of Science degree in Entrepreneurship.

■ Bienvenido V. Tantoco III, 48 years old, Director. Mr Tantoco is the President of

Rustan Supercenter, Inc. He also served as the Executive Vice President and General

Manager of Rustan Supercenter, Inc. prior to his appointment as the President. In

addition, he was the Vice President for Corporate Planning and later with the Office of

the President, of Rustan Commercial Corporation. Mr. Tantoco graduated from

Connecticut College with a Bachelor of Arts degree in Economics, and J.L Kellogg

Graduate School of Management, Northwestern University with a Master of

Management degree, majors in Marketing, Accounting, and Organizational Behaviour.

■ Eduardo T. Lopez III, 46 years old, Director. Mr Lopez is the General Manager and

Vice President of Finance and Administration of Superstar Security Agency, Inc., the

Assistant to the President of Unilogix, Inc., the owner and General Manager of Blue

Line Art Gallery, Inc., and the owner and General Manager of Secondo Time Pieces.

He is a director of Touch Media Philippines, Inc. and Market Intelligence Holdings,

Corp. In addition, Mr. Lopez serves as a member of the board of directors of Rustan

Commercial Corporation, Rustan Marketing Corporation, Rustan Supermarket, Inc.,

Rustan Coffee Corporation, Rustan Superstore Administration, Inc., Rustan

Investments Management Corporation and Rustan Design Specialists, Inc. Mr. Lopez

graduated from Ateneo De Manila University with a Bachelor of Science degree in

Economics, Santa Clara University with a Bachelor of Science degree in Economics,

and Stanford University with a Master of Science degree in Management.

■ Edgardo Luis Pedro T. Pineda, Jr., 43 years old, Director. Mr Pineda is also a

director of other Group companies, Stores Specialists, Inc. and Rustan Marketing

Specialists, Inc. In addition, he is a director of Rustan Commercial Corporation,

17 December 2014

SSI Group, Inc.


Rustan Marketing Corporation, Rustan Supermarket, Inc., Rustan Coffee Corporation,

Rustan Superstore Administration, Inc., Rustan Investments Management Corporation

and Rustan Design Specialists, Inc. Mr. Pineda graduated from Fordham University

with a Bachelor of Science degree in Business Administration, and Stanford University

with a Master of Science degree in Business Management.

■ Elizabeth T. Quiambao, 62 years old, Executive Vice President. Mrs Quaimbao is

also the Executive Vice President and General Manager of all of the other Group

companies, except for Rustan Marketing Specialists, Inc. Prior to joining the Group in

1994, she was an auditor with SGV & Co., the Controller of Philippine Aerospace

Development Corp., the Vice President of Tourist Duty Free Shops and Vice President

of Grosby Footwear, Inc. Mrs Quaimbao graduated magna cum laude from the

University of Santo Tomas with a Bachelor of Science degree in Commerce, major in

Accountancy and is a certified public accountant.

■ Rosselina J. Escoto, 61 years old, Vice President of Finance. Mrs Escoto is also

the Finance Manager of other Group companies, Stores Specialists, Inc, Global

Specialty Retailers, Inc. Footwear Specialty Retailers, Inc., Luxury Concepts, Inc.,

International Specialty Fashions, Inc. and International Specialty Concepts, Inc. Prior

to joining the Group in 1997, she was an auditor with SGV & Co., and also held a

senior management position with the PSE. Mrs. Escoto graduated magna cum laude

from the University of Santo Tomas with a Bachelor of Science degree in Commerce,

major in Accountancy and is a certified public accountant.

■ Reuben J. Ravago, 45 years old, Vice President of IT. Mr Ravago is the Chief

Technical Consultant for Rustan Commercial Corporation, and the founder and Chief

Technology Architect of OLM Technologies, Inc. Prior to joining the Group in 2007, he

was a senior technology consultant with SGV Associates, and the Managing Director

and IT Director of K2 Interactive, Inc. Mr. Ravago graduated from the University of the

Philippines with a Bachelor of Science in Computer Science and a Master of Science

degree in Electrical Engineering (Computers and Communication).

■ Margarita A. Atienza, 41 years old, Vice President of Investor Relations and

Compliance. Prior to joining the Group in 2014, she was an Associate Director for Client

Coverage with BPI Capital Corporation, which she joined in 2008. Ms Atienza graduated

from the Ateneo de Manila University with a Bachelor's Degree in Social Sciences, and the

Asian Institute of Management with a Master's degree in Business Administration.

■ Rosanno P. Nisce, 50 years old, Corporate Secretary. Mr Nisce is the Managing

Partner of the Nisce Mamuric Guinto Rivera and Alcantara Law Offices. He has been in

law practice for 25 years, specializing in corporate and commercial law. Mr. Nisce

graduated from the Ateneo De Manila University with a Bachelor of Arts degree in

Economics, and obtained his Bachelor of Laws degree from the Ateneo de Manila School

of Law. He subsequently obtained his Master of Laws degree in International Banking and

Financial Law from the Morin Center of the Boston University School of Law.

■ Cheryl Anne M. Berioso, 35 years old, Head of Corporate Planning. Prior to the

joining the Group in 2001, she was a market and planning analyst with the Bank of

Commerce, as well as the Secretary for the Executive and Asset and Liabilities

Committees. Ms. Berioso graduated from De La Salle University with a Bachelor of

Science in Applied Economics and a Master of Science degree in Economics.

17 December 2014

SSI Group, Inc.


Name of shareholders

% of total shares

outstanding

Wellborn Trading and Investments, Inc.1 14.07%

Bordeaux Holdings, Inc.2 12.53%

Birdseyeview, Inc.3 13.11%

Marjorisca, Incorporated4 13.11%

Educar Holdings, Corp.5 12.55%


1 Wellborn Trading and Investments, Inc. is beneficially owned by Zenaida R. Tantoco, Anthony T. Huang,

Michael T. Huang and Catherine T. Huang as to 77.9%, 7.4%, 7.4% and 7.4%, respectively. 2 Bordeaux Holdings, Inc. is wholly and beneficially owned by Ma. Lourdes T. Pineda.

3 Birdseyeview, Inc. is wholly and beneficially owned by Ma. Teresa R. Tantoco.

4 Marjorisca, Incorporated is wholly and beneficially owned by Ma. Elena T. Valbuena.

5 Educar Holdings, Corp. is beneficially owned by seven members of the Lopez family, Eduardo S. Lopez,

Jr., Ma. Carmencita T. Lopez, Eduardo T. Lopez III, Emmanuel T. Lopez, Ma. Margarita L. De Jesus, Ma. Carmencita L. Tiangco, and Enrique Antonio T. Lopez

17 D

ec

em

ber 2

014

SS

I Gro

up

, Inc.

(SS

I.PS

/ SS

I PM

) 5

1

Appendix III: NJA retail sector comparable analysis

Figure 67: NJA retail sector comparable analysis


CS Price Market EPS growth P/E EV/EBITDA EV/IC DvD Yld ROE P/BV

FCF

Yld ROIC

Net

Debt/

Equity

Gross

Profit

margin

EBITDA

margin

EBIT

margin

Net

Income

margin

Ticker Stock RTG Local Upside cap (%) (x) (x) (x) (%) (%) (x) (%) (%) (%) (%) (%) (%) (%)

(%) (USDm) 14E 15E 16E 14E 15E 16E 14E 15E 14E 15E 2014E 2014E

Philippines

PGOLD.PS Puregold Price Club, Inc NR 38.20 n.a. 2,366 8 15 15 24.7 21.6 18.8 12.9 11.1 n/a n/a 1.1 13.3 3.1 3.9 n/a n/a 17.0 8.4 7.1 5.0

RRHI.PS Robinsons Retail NR 77.50 n.a. 2,403 (33) 21 18 30.7 25.4 21.5 12.7 10.3 n/a n/a 0.6 9.0 2.7 (0.2) n/a n/a 20.9 7.5 5.9 4.2

Average (13) 18 16 27.7 23.5 20.2 12.8 10.7 n/a n/a 0.8 11.2 2.9 1.9 n/a n/a 18.9 8.0 6.5 4.6

China

6808.HK Sun Art NR 7.88 n.a. 9,695 7 10 8 20.1 18.3 16.9 9.5 8.5 n/a n/a 2.3 15.3 3.0 11.4 n/a n/a 27.7 7.2 4.4 3.2

1880.HK Belle International Holdings Ltd O 8.28 25 9,006 (0) 11 10 12.7 11.4 10.4 7.9 7.3 2.3 2.2 3.5 15.2 1.9 5.6 17.5 (18) 57.0 17.9 15.0 11.2

0493.HK GOME Electrical Appliances Holding Limited O 1.08 67 2,362 33 18 18 12.3 10.4 8.8 4.5 3.7 1.0 0.8 2.4 7.1 0.9 14.4 11.9 (50) 15.1 2.8 2.2 1.8

3308.HK Golden Eagle Retail Group Ltd. U 9.10 (1) 2,096 6 10 n/a 10.4 9.4 n/a 8.3 7.4 2.3 2.1 2.9 23.0 2.4 2.1 17.6 21 71.1 45.4 39.4 30.9

1833.HK Intime Retail Group Co Ltd O 5.83 68 1,632 (16) 23 n/a 10.5 8.6 n/a 9.1 7.9 1.2 1.3 4.6 11.8 1.0 3.7 5.9 31 66.9 37.8 22.8 22.9

1700.HK Springland International Holdings Limited O 2.88 72 914 12 16 n/a 7.0 6.1 n/a 5.7 4.9 1.2 1.1 6.4 15.6 1.1 3.9 12.0 19 45.0 31.2 23.9 17.9

3368.HK Parkson Retail Group Ltd. U 2.01 (10) 721 21 (2) n/a 10.5 10.7 n/a 3.0 3.0 0.6 0.6 4.3 7.3 0.8 9.1 8.8 (23) 69.9 20.8 12.3 9.3

0980.HK Lianhua NR 3.72 n.a. 537 118 28 27 27.1 21.2 16.7 n/a n/a 2.0 3.2 1.0 10.8 n/a n/a 21.8 1.9 0.3 0.3

Average 22 14 16 13.8 12.0 13.2 6.9 6.1 1.5 1.3 3.6 12.3 1.5 7.6 12.3 (3) 46.8 20.6 15.0 12.2

Hong Kong

1929.HK Chow Tai Fook Jewellery Group Limited O 10.44 25 13,464 (5) 14 14 15.1 13.3 11.7 11.7 10.4 2.5 2.2 3.3 16.9 2.6 8.5 16.3 4 30.5 13.5 12.4 9.7

0291.HK CRE NR 15.60 n.a. 4,871 (34) (3) 31 29.7 30.5 23.4 8.7 7.3 n/a n/a 1.1 1.9 0.8 24.6 n/a n/a 24.8 4.0 1.6 0.6

0330.HK Esprit Holdings U 8.86 (1) 2,220 85 5 23 nmf nmf 34.2 8.5 7.8 0.9 0.9 0.0 2.3 1.0 0.6 3.0 (27) 50.2 5.7 2.0 1.6

1212.HK Lifestyle International Holdings Ltd O 15.18 15 3,190 (15) 11 5 12.1 11.0 10.4 11.0 9.9 1.8 1.7 3.3 17.9 2.1 5.7 12.1 11 59.3 42.4 37.8 36.0

0178.HK Sa Sa International Holding U 5.56 (21) 2,040 (5) 8 4 17.8 16.5 15.8 12.0 10.9 7.0 7.0 4.0 35.3 6.2 4.2 38.7 (14) 45.2 13.4 11.2 9.4

0590.HK Luk Fook Holdings International O 26.85 6 2,040 (12) 10 11 9.6 8.8 7.9 6.8 6.1 2.2 2.0 4.2 19.1 1.8 11.7 24.0 (24) 24.4 13.2 12.2 10.1

0116.HK Chow Sang Sang N 20.15 (5) 1,759 (5) 17 18 11.7 10.0 8.5 8.9 7.8 1.7 1.6 3.2 13.4 1.6 10.0 13.5 (1) 20.9 7.8 6.9 5.6

0891.HK Trinity NR 1.56 n.a. 351 (36) 31 22 13.8 10.5 8.6 8.1 6.8 n/a n/a 5.4 7.7 0.7 12.4 n/a n/a 77.1 15.7 9.2 7.4

0999.HK IT NR 2.30 n.a. 364 (25) 13 24 10.2 9.0 7.3 3.5 3.4 n/a n/a 4.7 10.8 1.0 19.1 n/a n/a 60.9 10.8 6.6 4.3

Average (17) 13 16 15.0 13.7 11.7 8.8 7.8 3.1 2.9 3.6 15.4 2.1 12.1 20.9 (5) 42.9 15.1 12.2 10.4

Indonesia

LPPF.JK Matahari Department Store O 14,900 30 3,431 28 31 28 29.6 22.5 17.6 18.8 16.2 nmf nmf 1.1 38.7 11.4 3.6 106.5 (104) 65.3 30.2 27.5 18.8

ACES.JK Ace Hardware Indonesia N 735 29 995 10 20 18 22.5 18.7 15.9 16.3 13.9 6.6 5.4 1.6 24.3 5.5 4.0 28.6 (17) 49.1 16.2 14.2 11.8

MPPA.JK Matahari Putra Prima O 3,320 8 1,409 12 24 11 35.8 28.8 25.9 20.0 16.0 6.6 5.5 0.7 13.6 4.9 2.0 17.8 (31) 17.0 5.9 4.2 3.5

MAPI.JK Mitra Adiperkasa U 5,075 (33) 665 (43) 30 31 44.8 34.4 26.2 12.6 11.1 2.2 2.0 0.6 7.3 3.3 1.0 8.5 95 47.3 7.3 5.2 1.6

RALS.JK Ramayana Lestari Sentosa N 715 24 400 (3) 8 15 13.4 12.4 10.8 4.7 4.5 2.2 2.3 4.2 11.1 1.5 15.1 17.6 (49) 34.7 13.4 5.9 6.3

ERAA.JK Erajaya Swasembada U 1,070 3 245 (19) 11 8 11.0 9.9 9.2 7.6 6.7 0.9 0.8 4.5 9.8 1.1 (15.6) 10.4 59 8.8 4.1 4.3 2.1

ECII.JK Electronic City O 1,140 40 120 (24) 14 80 9.7 8.5 4.7 4.1 3.3 0.7 0.5 3.4 8.7 0.8 11.4 12.8 (52) 19.9 6.6 5.5 6.9

Average (6) 20 27 23.8 19.3 15.7 12.0 10.2 3.2 2.8 2.3 16.2 4.1 3.1 28.9 (14) 34.6 12.0 9.5 7.3

Singapore

DAIR.SI Dairy Farm International NR 9.14 n.a. 12,358 4 13 10 24.8 22.1 20.0 15.1 13.4 n/a n/a 2.6 35.9 8.6 5.6 n/a n/a 29.8 6.8 5.0 4.4

OSIL.SI OSIM International N 2.06 19 1,232 1 11 17 16.4 14.7 12.5 9.9 8.7 8.5 6.7 2.9 34.3 5.4 5.2 45.7 (41) 71.9 21.2 18.4 14.4

Average 2 12 14 20.6 18.4 16.3 12.5 11.1 8.5 6.7 2.8 35.1 7.0 5.4 45.7 (41) 50.8 14.0 11.7 9.4

South Korea

023530.KS Lotte Shopping N 278,000 15 8,106 5 12 12 11.0 9.8 8.7 9.1 8.2 0.7 0.7 0.9 4.5 0.5 (1.0) 3.2 64 30.0 7.6 4.5 2.7

139480.KS E-MART Co. Ltd N 218,500 14 5,640 (7) 16 n/a 14.1 12.2 n/a 8.9 8.1 0.9 0.8 0.6 6.2 0.9 3.5 4.7 49 22.9 7.2 4.6 3.0

069960.KS Hyundai Department Store Co. Ltd O 119,500 59 2,589 (6) 25 16 10.1 8.1 7.0 7.4 6.3 0.8 0.7 0.5 8.4 0.9 (1.6) 6.0 21 27.7 9.9 7.7 5.8

004170.KS Shinsegae Co. N 191,500 41 1,746 15 13 n/a 10.4 9.2 n/a 9.0 8.0 0.8 0.7 1.2 6.9 0.7 (6.7) 4.6 57 31.1 9.2 6.7 3.5

035760.KQ CJ O Shopping Co Ltd O 262,000 34 1,506 (6) 16 20 12.9 11.1 9.3 4.9 4.5 1.1 1.2 0.8 14.4 1.9 4.3 8.1 73 29.5 11.0 5.5 2.7

057050.KS Hyundai Home Shopping Network Corp O 136,000 47 1,511 (20) 15 10 10.5 9.1 8.2 6.2 5.5 2.0 2.1 0.9 12.0 1.3 8.2 23.7 (63) 28.6 5.5 5.2 5.4

028150.KQ GS Home Shopping Inc N 212,000 18 1,288 (4) 4 20 11.1 10.6 8.9 4.2 4.2 83.5 15.9 1.8 13.9 1.5 12.4 14.4 (99) 28.5 4.6 4.3 3.7

Average (3) 15 16 11.4 10.0 8.4 7.1 6.4 12.8 3.2 1.0 9.5 1.1 2.7 9.2 15 28.3 7.9 5.5 3.8

Taiwan

2912.TW President Chain Store O 226.00 12 7,525 22 3 10 24.0 23.2 21.0 12.9 11.4 24.5 57.9 2.7 37.3 8.9 4.8 110.7 (71) 32.6 7.7 5.5 4.5

Thailand

CPALL.BK C.P. All PCL U 39.25 (1) 10,697 5 30 23 30.6 23.6 19.2 17.8 15.4 3.0 3.1 2.5 34.3 10.5 9.9 8.8 347 20.3 7.3 5.6 2.9

BIGC.BK Big C Supercenter PCL NR 242.00 n.a. 6,057 4 17 16 27.5 23.6 20.4 15.5 13.5 n/a n/a 1.1 18.3 4.7 6.0 n/a n/a 15.5 10.4 7.5 5.5

MAKR.BK Siam Makro PCL N 35.75 10 5,206 56 32 n/a 28.8 21.9 n/a 19.4 14.9 9.6 9.1 2.3 42.3 12.2 1.4 30.5 29 9.6 5.9 4.5 3.9

HMPRO.BK Home Products Center PCL U 8.10 (21) 3,030 (2) 13 8 28.8 25.6 23.6 17.0 14.8 4.1 3.4 0.5 19.8 5.7 (2.3) 12.8 75 31.2 13.7 9.2 6.5

ROBI.BK Robinson Department Store Pcl N 43.50 6 1,466 12 24 13 21.8 17.6 15.6 10.7 9.0 3.6 3.3 1.8 17.8 3.9 (1.6) 17.3 0 25.3 16.3 10.4 8.0

GLOBAL.BK Siam Global House PCL U 11.10 12 1,027 39 45 n/a 23.4 16.2 n/a 20.6 13.5 2.5 2.1 1.1 10.6 2.5 (3.6) 6.2 18 15.4 8.1 5.8 6.0

Average 19 27 15 26.8 21.4 19.7 16.8 13.5 4.6 4.2 1.6 23.9 6.6 1.6 15.1 94 19.6 10.3 7.2 5.5

NJA Average 2 17 18 18.5 15.8 14.3 10.4 9.0 6.1 4.7 2.4 16.5 3.2 5.5 21.2 10 35.3 13.1 10.0 7.9

17 December 2014

SSI Group, Inc.


Companies Mentioned (Price as of 17-Dec-2014)

7 Eleven (SEVE.KL, RM1.33) Ace Hardware Indonesia (ACES.JK, Rp750) Ayala Land (ALI.PS, P33.0) Belle Corporation (BEL.PS, P4.89) Belle International Holdings Ltd (1880.HK, HK$8.4) Big C Supercenter PCL (BIGC.BK, Bt238.0) Bloomberry Resorts Corporation (BLOOM.PS, P12.3) C.P. All PCL (CPALL.BK, Bt39.5) CJ O Shopping Co Ltd (035760.KQ, W267,100) CRE (0291.HK, HK$15.22) Chow Sang Sang (0116.HK, HK$20.05) Chow Tai Fook Jewellery Group Limited (1929.HK, HK$10.14) Dairy Farm International (DAIR.SI, $9.13) E-MART Co. Ltd (139480.KS, W218,500) Electronic City (ECII.JK, Rp1,120) Emperador Inc. (EMP.PS, P10.32) Erajaya Swasembada (ERAA.JK, Rp1,080) Esprit Holdings (0330.HK, HK$8.68) FamilyMart (8028.T, ¥4,450) GOME Electrical Appliances Holding Limited (0493.HK, HK$1.05) GS Home Shopping Inc (028150.KQ, W217,200) Golden Eagle Retail Group Ltd. (3308.HK, HK$9.1) Home Products Center PCL (HMPRO.BK, Bt8.2)

Hyundai Department Store Co. Ltd (069960.KS, W119,500) Hyundai Home Shopping Network Corp (057050.KS, W136,000) IT (0999.HK, HK$2.32) Intime Retail Group Co Ltd (1833.HK, HK$5.52) Itochu Corp (8001.T, ¥1,213) Jollibee Foods Corporation (JFC.PS, P201.6) Lawson (2651.T, ¥7,100) Lianhua (0980.HK, HK$3.57) Lifestyle International Holdings Ltd (1212.HK, HK$15.22) Lotte Shopping (023530.KS, W279,500) Luk Fook Holdings International (0590.HK, HK$27.5) Matahari Department Store (LPPF.JK, Rp14,200) Matahari Putra Prima (MPPA.JK, Rp3,240) Megaworld Corp (MEG.PS, P4.72) Mitra Adiperkasa (MAPI.JK, Rp5,100) OSIM International (OSIL.SI, S$2.02) PSC (SEVN.PS, P85.0) Parkson Retail Group Ltd. (3368.HK, HK$2.01) President Chain Store (2912.TW, NT$228.0) Puregold Price Club, Inc (PGOLD.PS, P37.0) Ramayana Lestari Sentosa (RALS.JK, Rp725) Robinson Department Store Pcl (ROBINS.BK, Bt43.25) Robinsons Land Corporation (RLC.PS, P25.6) Robinsons Retail (RRHI.PS, P76.55) SM Prime Holdings (SMPH.PS, P16.4) SSI Group, Inc. (SSI.PS, P9.13, OUTPERFORM[V], TP P11.3) Sa Sa International Holding (0178.HK, HK$5.38) Seven & i Holdings (3382.T, ¥4,191) Shinsegae Co. (004170.KS, W191,000) Siam Global House PCL (GLOBAL.BK, Bt11.2) Springland International Holdings Limited (1700.HK, HK$2.84) Sumber Alfaria (AMRT.JK, Rp497) Sun Art (6808.HK, HK$7.84) Travellers International Hotel Group, Inc. (RWM.PS, P6.96) Trinity (0891.HK, HK$1.53) Universal Robina Corp. (URC.PS, P186.0)

Disclosure Appendix

Important Global Disclosures

Karim P. Salamatian, CFA and Danielo Picache, each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

17 December 2014

SSI Group, Inc.


Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 46% (53% banking clients)

Neutral/Hold* 37% (50% banking clients)

Underperform/Sell* 14% (43% banking clients)

Restricted 2%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for SSI Group, Inc. (SSI.PS)

Method: Our P11.30 12 month target price is 60% based on EV/IC over Excess Return (ROIC/WACC) model, 25% on EV/EBITDA and 15% on P/E comparison. Our target price implies 2015E EV/EBITDA of 13x, 2015E P/E of 29x and 2015E P/B of 4.8x.

Risk: Risks to our P11.30 12 month target price include Inability to sustain leading market position; sudden downturn in domestic economic activity; merchandising and store development execution and changes in the Filipino Peso relative to the Euro and US Dollar.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (SSI.PS, ALI.PS, BEL.PS, 1880.HK, BIGC.BK, 035760.KQ, 139480.KS, EMP.PS, ERAA.JK, 8028.T, 0493.HK, 3308.HK, 8001.T, 023530.KS, MEG.PS, MAPI.JK, OSIL.SI, 3368.HK, ROBINS.BK, RLC.PS, SMPH.PS, 3382.T, RWM.PS, URC.PS) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

17 December 2014

SSI Group, Inc.


Credit Suisse provided investment banking services to the subject company (SSI.PS, ALI.PS, BEL.PS, BIGC.BK, 8028.T, 3308.HK, RLC.PS, RWM.PS, URC.PS) within the past 12 months.

Credit Suisse has managed or co-managed a public offering of securities for the subject company (SSI.PS, ALI.PS, BEL.PS) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (SSI.PS, ALI.PS, BEL.PS, BIGC.BK, 8028.T, 3308.HK, RLC.PS, RWM.PS, URC.PS) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (SSI.PS, ALI.PS, BEL.PS, 1880.HK, BIGC.BK, 035760.KQ, 1929.HK, 139480.KS, EMP.PS, ERAA.JK, 8028.T, 0493.HK, 028150.KQ, 3308.HK, 8001.T, 2651.T, 1212.HK, 023530.KS, MEG.PS, MAPI.JK, OSIL.SI, 3368.HK, 2912.TW, ROBINS.BK, RLC.PS, SMPH.PS, 3382.T, GLOBAL.BK, RWM.PS, URC.PS, LPPF.JK) within the next 3 months.

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (BIGC.BK, ECII.JK, 1833.HK, 2912.TW).

Credit Suisse has a material conflict of interest with the subject company (023530.KS) . Credit Suisse is acting as exclusive financial advisor to Lotte for the acquisition of LuckyPai.

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (SSI.PS, ACES.JK, ALI.PS, BEL.PS, 1880.HK, BIGC.BK, BLOOM.PS, CPALL.BK, 035760.KQ, 0116.HK, 1929.HK, 139480.KS, ECII.JK, EMP.PS, ERAA.JK, 8028.T, 0493.HK, 028150.KQ, 3308.HK, HMPRO.BK, 069960.KS, 057050.KS, 1833.HK, 8001.T, JFC.PS, 2651.T, 1212.HK, 023530.KS, 0590.HK, MPPA.JK, MEG.PS, MAPI.JK, OSIL.SI, 3368.HK, 2912.TW, PGOLD.PS, RALS.JK, ROBINS.BK, RLC.PS, SMPH.PS, 0178.HK, 3382.T, 004170.KS, GLOBAL.BK, 1700.HK, 1700.HK, RWM.PS, URC.PS, 0330.HK, LPPF.JK) within the past 12 months

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.

Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (SSI.PS, ALI.PS, BEL.PS, BIGC.BK, ECII.JK, ROBINS.BK, RLC.PS, RWM.PS, URC.PS) within the past 3 years.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

For Thai listed companies mentioned in this report, the independent 2014 Corporate Governance Report survey results published by the Thai Institute of Directors Association are being disclosed pursuant to the policy of the Office of the Securities and Exchange Commission: Big C Supercenter PCL () , C.P. All PCL () , Home Products Center PCL (Very Good) , Robinson Department Store Pcl (Very Good) , Siam Global House PCL (Good)

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse (Hong Kong) Limited ................................................................................................................................. Karim P. Salamatian, CFA

Credit Suisse Securities (Philippines) Inc. ..................................................................................................................................... Danielo Picache

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

17 December 2014

SSI Group, Inc.


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This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the "FAA"), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provide to you. This information is being distributed by Credit Suisse AG, Dubai Branch, duly licensed and regulated by the Dubai Financial Services Authority (DFSA), and is directed at Professional Clients or Market Counterparties only, as defined by the DFSA. The financial products or financial services to which the information relates will only be made available to a client who meets the regulatory criteria to be a Professional Client or Market Counterparty only, as defined by the DFSA, and is not intended for any other person. This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority or in respect of which the protections of the Prudential Regulation Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

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