AllDay notes after deeper reading of the prospectus

As mentioned on Friday, the Villar Family announced that it would take AllDay Mart public in the first week of November, to raise P6 billion. I only had a few minutes with the prospectus before I submitted my take, but I’ve since had a chance to sit with the prospectus for a longer period of time and think more deeply about the offering. The main thing that jumps out at me is that the Villar Family did not include the AllDay convenience store brand in this offering, unlike Injap Sia’s MerryMart [MM 3.62 1.40%] which includes all of the store formats from convenience stores all the way up to the full-sized MerryMart Grocery. AllDay's [ALLDY 0.80] FY20 net profit margin was 2.8%, while MM’s was 1.4%. At ALLDY’s maximum price, it’s price-to-earnings multiple would be just 8.2x based on the post-IPO number of shares and its FY20 net income.

Using the same procedure, MM’s price-to-earnings multiple is 562x. ALLDY appears to be cheaper than MM in terms of price, while also being more profitable. Now, perhaps investors are placing a huge premium on Injap Sia himself, or on his grand plan to develop MM into a behemoth by 2030 that straddles other businesses like logistics and fintech, or maybe it’s a combination of both; whatever the case may be, the figures and pricing provided by ALLDY certainly make MM seem over-priced in comparison.

MB BOTTOM-LINE

ALLDY’s spectacular profitability won’t last forever, that much is obvious, but what I think everyone wants to know is how steep the decline will be over the coming years as competition in the space heats up. One way the Villar Family can fight off the eventual profit margin decline is by tactfully pushing a white-label strategy with the food that it carries in its ALLDY stores. The family has a lot of experience with this strategy with AllHome [HOME 7.37 0.00%], where gradually, over a relatively long timeframe, HOME has introduced in-house product lines to appear side-by-side with traditional name brands.

HOME has increased its profitability by tastefully marketing those in-house products (where its profit margin is much higher), and increasing the number of in-house product lines and the proportion of their sale relative to traditional name brands. Perhaps the family has the same strategy in mind with ALLDY, and if it does, the Villars will find themselves neck-deep in the fussy world of logistics and cold chain support for perishable food items.

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