11.06.2001
Solid defensive play - Initiating coverage

• Company visit yesterday to PCS confirmed 3Q01 operating results and guidance for 2002. 3Q01 sales at NT$17.5bn, up 8% QoQ and 14% YoY, however losses sustained from Typhoon Nari and worse than expected investment losses saw EPS fall 18% QoQ and 1% YoY to NT$0.76. We expect full year results to come in a whisker under PSC forecasts with sales and earnings up 15% and 12%, respectively. Looking ahead to 2002, PCS is focusing on improving efficiency at individual stores, which, in the context of slower new store additions (11% growth in ‘02 vs ‘97-‘01 avg growth of 17%) will limit any further margin compression. Despite PCS’ premium valuation (P/E 22x; P/B 4.7x), we believe the counter offers substantial defensive qualities. Future upside will come from clarification of 7-Eleven parent company re: China licensing issue. As we have just initiated coverage on the group, these shares are currently under review with an official rating pending.