President Chain Store Earnings: Rising Costs in Taiwan Weigh on Operating Margin

Narrow-moat President Chain Store Corp.’s second-quarter revenue was consistent with our estimate, but net profit exceeded our forecast because of an asset disposal gain. The various businesses in Taiwan, including 7-Eleven and Starbucks, were affected by rising utilities and labor costs, dragging operating margin lower by 10 basis points compared with last year. Despite the earnings beat, we’ve raised full-year 2024 net income estimate by only 1% due to an increase in our forecast for selling, general, and administrative expenses. We retain our fair value estimate at TWD 276 per share, which implies 26 times 2024 price/earnings, 6 times enterprise value/EBITDA, and a 3.3% dividend yield. We see current share prices as fairly valued.