Philippine Markets Newsletter

This retail firm weathered every storm that came its way, strategically executing multiple initiatives to reach a Uniform ROA of 6%, not 4%

December 27, 2023

Despite recent hurdles, this retail company persevered and came back stronger thanks to its continued cost optimization, expansion, and digitalization initiatives.

However, as-reported metrics indicate that that is not the case, when in fact, Uniform returns show that 2022 was the year the company was able to bounce back.

Also below, Uniform Accounting Embedded Expectations Analysis and the Uniform Accounting Performance and Valuation Tearsheet for the company.

Philippine Markets Newsletter:
Wednesday Uniform Earnings Tearsheets – Philippine-listed Focus
Powered by Valens Research

It’s been four decades since Victor and Sally Gaisano opened their first department store and supermarket in Cebu—with the company eventually being named Metro Retail Stores Group, Inc. (MRSGI:PHL).

Since then, the company has been able to revolutionize its business into a firm that excels in multiple store formats: Metro Department Store, Metro Supermarket, and Super Metro Hypermarket.

Metro Retail has experienced many hardships throughout the years, including the major fire of its flagship store in 2018, the closure of department stores during the pandemic, and the supply chain disruptions from the Ukraine-Russia war.

Despite all of those hurdles, the company bounced back and achieved record sales of PHP 38.1 billion in 2022—which is a 22% increase from 2021—thanks to Metro Retail’s continued cost optimization initiatives and digitalization strategies.

Specifically, its e-commerce platform ShopMetro has continued to gain traction as people still find it convenient to just shop online instead of physically going to the stores.

To further increase shoppers’ convenience, the company has started to develop a mobile app that is still under the same name—a project that will be launched in Q3 2024.

It also displayed its resilience through continuous expansion of its stores—launching several projects across Luzon and Visayas. One of which is the development of a new distribution center in Laguna.

Another one of its most recent store openings is the Metro Supermarket Paseo Arcenas in Banawa, Cebu City—which brings the total number of stores up to 62 nationwide as of 2022.

Despite the price pressure and supply chain challenges, the full reopening of the country’s economy allowed the firm to produce profitable returns.

Metro Retail’s earning power is stronger than you think

However, as-reported metrics doesn’t seem to think so, with ROAs only reaching below cost-of-capital levels in 2022.

In reality, Metro Retail managed to overcome all obstacles and improve its profitability levels, reaching a Uniform ROA of 6%.

One of the said distortions stems from how Philippine Financial Reporting Standards (PFRS) classifies interest expense.

According to PFRS, interest expense is an operating cash flow. In reality, interest expense represents the cost of debt and is rightfully a financing cash flow. As such, in Uniform Accounting, interest expense is added back to earnings.

For example, in 2022, Metro Retail recognized an interest expense of PHP 523.5 billion, 57% of as-reported net income of PHP 917.3 billion. When we add the PHP 523.5 billion back to earnings, because it is not an operating expense, net income increases. This adjustment alone represents a 1.6% jump in Uniform earning power.

Metro Retail has a more efficient business than you think

Trends in Uniform ROA have been driven by trends in Uniform asset turns. The firm’s asset utilization, a critical factor in profitability, is also greatly distorted. As-reported asset turnover has been consistently lower than Uniform asset turnover for the past decade, giving the organization a lower asset efficiency score than actual economic measures indicate.

Moreover, in the past four years, as-reported asset turnover has reached a peak of 1.6x. In comparison, Uniform turns have reached a high of 2.1x over the same time period, making Metro Retail appear to be a less efficient business than real economic metrics highlight.

SUMMARY and Metro Retail Stores Group, Inc. Tearsheet

As our Uniform Accounting tearsheet for Metro Retail Stores Group, Inc. (MRSGI:PHL) highlights, the company trades at a Uniform P/E of 14.2x, below the global corporate average of 18.4x, but in line with its historical P/E of 14.5x.

Low P/Es require low EPS growth to sustain them. In the case of Metro Retail, the company has recently shown a 241% Uniform EPS shrinkage.

Sell-side analysts provide stock and valuation recommendations that in general provide very poor guidance or insight. However, sell-side analysts’ near-term earnings forecasts tend to have relevant information.

We take sell-side forecasts for Philippine Financial Reporting Standards (PFRS) earnings and convert them to Uniform earnings forecasts. When we do this, Metro Retail’s sell-side analyst-driven forecast is to see a Uniform earnings growth of 33% and an immaterial shrinkage in 2023 and 2024, respectively.

Based on current stock market valuations, we can use earnings growth valuation metrics to back into the required growth rate to justify Metro Retail’s PHP 1.22 stock price. These are often referred to as market-embedded expectations.

The company is currently being valued as if Uniform earnings were to shrink by 1% annually over the next three years. What sell-side analysts expect for Metro Retail’s earnings growth is above what the current stock market valuation requires through 2024.

Moreover, the company’s earning power is 1x the long-run corporate average. Additionally, cash flows and cash on hand are 2x above its total obligations. Moreover, intrinsic credit risk is 990bps above the risk-free rate. Together, this signals a high credit risk.

Lastly, Metro Retail’s Uniform earnings growth is above its peer averages, while its Uniform forward P/E is in line with its average peer valuations.

About the Philippine Markets Newsletter
“Wednesday Uniform Earnings Tearsheets – Philippine-listed Focus”

Some of the world’s greatest investors learned from the Father of Value Investing or have learned to follow his investment philosophy very closely. That pioneer of value investing is Professor Benjamin Graham. His followers:

Warren Buffett and Charles Munger of Berkshire Hathaway; Shelby C. Davis of Davis Funds; Marty Whitman of Third Avenue Value Fund; Jean-Marie Eveillard of First Eagle; Mitch Julis of Canyon Capital; just to name a few.

Each of these great investors studied security analysis and valuation, applying this methodology to manage their multi-billion dollar portfolios. They did this without relying on as-reported numbers.

Uniform Adjusted Financial Reporting Standards (UAFRS or Uniform Accounting) is an answer to the many inconsistencies present in GAAP and IFRS, as well as in PFRS.

Under IFRS, each company’s financial statements are rebuilt under a consistent set of rules, resulting in an apples-to-apples comparison. Resulting UAFRS-based earnings, assets, debts, cash flows from operations, investing, and financing, and other key elements become the basis for more reliable financial statement analysis.

Every Wednesday, we focus on one Philippine-listed company that’s particularly interesting from a UAFRS vs as-reported standpoint. We highlight one adjustment that illustrates why the as-reported numbers are unreliable.

This way, we gain a better understanding of the factors driving a particular stock’s returns, and whether or not the firm’s true profitability is reflected in its current valuations.

Hope you’ve found this week’s Uniform Earnings Tearsheet on a Philippine company interesting and insightful.

Stay tuned for next week’s Philippine company highlight!


Angelica Lim
Research Director
Philippine Markets Newsletter
Powered by Valens Research

View All

You don’t have access to the Valens Research Premium Application.

To get access to our best content including the highly regarded Conviction Long List and Market Phase Cycle macro newsletter, please contact our Client Relations Team at 630-841-0683 or email

Please fill out the fields below so that our client relations team can contact you

Or contact our Client Relationship Team at 630-841-0683