Revenues to rebound, however…

FRUIT’s revenue in Q3 2020 dropped 63 percent to PGP 167 million, taking its year-to-date (YTD) revenues to PHP 629 million, equal to 78 percent of our fiscal year forecast. As of end-May, the Company only operated about 300 stores. With easing constraints, FRUIT now operates about 900 stores. As a result, the company’s revenues rose by 90%. The company was also able to sell higher-margin goods for 9M 2020, increasing its gross profit margin from 58.4% to 60%.

Net loss is 32 million PHP

The company posted a net loss of PHP 19 million for 3Q, taking its YTD loss to PHP 32 million, equal to 157 percent of our PHP 21 million net loss estimate. Because of reduced business volume, the organization was able to reduce operating expenses by 39 percent to PHP 434 million, and cost-cutting steps such as managing employee working hours.

Pivoting distribution

Several firms, including FRUIT, have expanded distribution services to locate additional demand. Hitherto, FRUIT has effectively improved its deliveries. Pre-pandemic, its distribution sales never accounted for more than 5% of overall sales, and now it’s 6% of total operations. FRUIT also aims to extend its distribution services in high-density provinces from Metro Cebu. This should pave the way to start tapping distribution demand beyond NCR.

Concept of New Store

As mentioned, most of the FRUIT stores are located in the malls. As a result, to act as an offset, FRUIT is looking to extend its newly launched community store model. Community stores also act as distribution centers, allowing FRUIT to reach more customers. Only Babot’s Farm and Soy & Bean products are currently available, while FRUIT’s other brands will soon be available. FRUIT has now secured 30 locations and plans to have 100 community stores by 2021. The company currently operates 11 neighborhood stores (5 Babot’s Farm and 6 Soy & Bean stores).

Recommendation

We retain our fair value Target Price for FRUIT at PHP 1.81 per share.

In view of the reality that its goods are discretionary to the customer and that its mall stores account for around 70% of its overall store count, we did not expect a fast turnaround for FRUIT. As a consequence, we expected its earnings to start rebounding dramatically by 2022, predicting that local demand will see recovery near pre-pandemic peaks during that period.

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