PCSC’s Q2 Top Line Recovered but Margin Still Pressured; Raising FVE to TWD 261

Narrow-moat President Chain Store, or PCSC, reported second-quarter results with resilient top-line and profit year-on-year growth, thanks to 7-11 Taiwan store expansion and low base from last year. The bottom line fell short of our expectations due to rising operating costs amid the inflationary environment. Apart from 7-Eleven Taiwan, we believe PCSC is not able to entirely pass through increased costs for the other business segments. Net margin only improved 20 basis points sequentially and remained below its historical average. The recently announced acquisition of a stake in Carrefour Taiwan from Carrefour Group is set to increase investment income for PCSC, though we do not expect material impact to its fair value estimate. We slightly increased our fair value estimate to TWD 261 from TWD 259 due to time value of money, but we think the share price has priced in a profit recovery for the year, and we consider the stock moderately overvalued.