Page 127 - RusRPTDec20

was left intact: 300 Detsky Mir stores; 800 detmir pickup stores; the online channel having a 45% share in revenues; and a 10% EBITDA margin under IAS17.
Detsky Mir has reported its 3Q20 IFRS results, with 13.5% y/y revenue growth translating into 9mo20 growth of 9.5% y/y. Our focus is on margins, with the EBITDA margin improving 140bp y/y to 13.4% in 3Q20, broadly in line with our estimates. Net income and the net margin missed our expectations significantly due to an FX loss of a RUB1bn, as RUBdepreciated at least 10% versus $during the quarter. The company commented on the strong 16% y/y growth in October and reiterated its intention to channel all 9mo20 RAS net income of RUB3.8bn to dividends. We leave our forecasts unchanged, seeing 2020F sales and EBITDA growth of 10% y/y in RUBterms, and the respective margin of 10.9%. We note the high uncertainty risks as we move closer to the end of 4Q20, while the depreciating local currency creates direct negative pressure on prices for the industry, which is heavily dependent on outbound purchases. We have a Buy for Detsky Mir as our 12-month Target Price of RUB140 implies a 38% ETR.
3Q20 IFRS: strong EBITDA margin, miss on the bottom line. The gross margin was broadly flat y/y in 3Q20, while rent expenses (and wages to a certain extent) were lower and helped the EBITDA margin to improve 140bp y/y. The hit came on the bottom line, as the depreciating currency resulted in a RUB1bn FX loss for the quarter and net income reached RUB2.3bn, broadly comparable y/y. We note that most of the company’s purchases are linked to hard currencies, and material volatility negatively affects the overall business. In 4Q20, industry players are to be negatively impacted by the new pricing environment, if RUBstays at least at the same level, and the growth in shelf prices might only be compensated by a downshifting assortment and purchasing power improvements. The latter is true only for large players. We are not making any changes to our forecast for the year, although note the high level of uncertainty. The comments about October sales growth are, in our view, positive.
Dividends are intact. The company mentioned that it planned to channel all of RAS net income to dividends for 9mo20, which is RUB3.8bn. We keep our annual dividend forecast of RUB8.8bn and do not see any risks to this number at the moment, as we expect FCF of RUB7.6bn and net debt/EBITDA at 1.2x as of YE20F. This results in a 10.9% annual DY.
​O'Key unveiled its 3Q20 trading update on October 30. Net retail revenues increased 3.6% y/y ​(amid 2.8% LFL sales growth) to R41.9bn, which marked a deceleration from the 6.1% sales growth in 2Q20. Revenues
127 ​RUSSIA Country Report​ December 2020 www.intellinews.com