MC Group Public Company Limited (MC) operates the retail trade of ready-made and related apparel under its own brands and invests in other companies. Correlation of VF Corporation (Lee and Wrangler) and MC Group Correlation of PG and MC Group.
LIST OF ABBREVIATIONS
VALUATIONS
Highlights
Currently, MC Group has 8 brands and in August 2015 just launched a new brand focused on premium clothing called McT. MC GROUP aims to expand to Myanmar, Laos, Vietnam and other countries under AEC, such as Indonesia, Malaysia and Cambodia.
Financial Summary
BUY rating with THB 15.86 price target A lowering of my FCFF forecast pulls the price target up slightly to THB 15.86. BUY' at its current market value after investors digested struggling earnings in the near term.
Business Description
- MC GROUP’s current plan and strategies
While MC GROUP plans to increase sales in its own stand-alone store in order to maintain higher profits and reduce the bargaining power of modern store buyers. This situation proves that MC GROUP's strategy of having its own standing shop is a good way to follow.
Macro-Economic Analysis
- Employment/unemployment rate increase because better economic situation. As mention above that forecasting GDP Q4 2015 and 2016 will
MC GROUP intends to expand to Myanmar, Laos, Vietnam and other countries under AEC such as Indonesia, Malaysia and Cambodia. MC GROUP believes that process improvement and implementation of information technology is the key to increase production efficiency, distribution efficiency as well as to reduce time-to-market of the products.
Industry analysis
- Jeans market in Thailand is growing 8.5% a year
- Apparel and lifestyle products retail business growing with better economic situation
- Thai consumers’ behavior tended to become more fashionable and self-caring but they also concern of value of money
- Apparel and Lifestyle products retail business under AEC
As mentioned above, the GDP forecast will increase in the fourth quarter of 2015 and 2016, and the employment rate will also increase due to the better economic situation, especially in the field of tourism. Apparel and lifestyle products will grow along with better economic conditions as GDP increases in 2016 and consumer spending also increases.
Competition Analysis
- Major Competitors
- MC GROUP is a market share leader in Thailand jeans market
- MC is brand and cost effective company
MC GROUP's products are relevant and also fashionable, so the MC brand will be suitable for consumer behavior in the latest situation. There are many indirect competitors who do not mainly sell jeans products such as Uniqlo and H&M entering Thailand to capture the same target audience as MC GROUP. Even non-brand jeans products maintain a fairly high market share around 11%, but MC GROUP's products are able to compete with non-brand because MC Group's products differ with its design and better quality at a reasonable price.
MC GROUP provides the largest number of outlets with 819 stores in urban and rural areas, while competitors have provided around 200 stores and are focusing on urban areas. MC Group takes care of e-commerce, so since June 2013, it offers www.wowme.co.th and http://www.mcshop.com/ as the main online sales channel for MC Group products, and also sells products through another website. channel such as www.lazada.com or Central online (www.central.co.th). Therefore, MC Group focuses on brand building to differentiate itself from other competitors, attractiveness and reputation.
Since MC GROUP's products are mostly sold to modern trade customers, they have quite high bargaining power, while MC GROUP is trying to increase the number of its freestanding store. The competitive rivalry is moderate as MG GROUP's products differ in quality, cut and design, and MC GROUP offers many stores in both Bangkok and the uplands, so people can easily find MC GROUP's products and buy it.
Investment Summary
- MC Group continuing expands the sales channel nation-wide to reach all customers
- MC Group expand into Lifestyle retailing
- Expand into foreign markets to cover all countries under Asian Economic Community (AEC)
- Seek M&A opportunities or joint ventures opportunities with business partners
- Emphasize on efficiency improvement in management
Having more points of sale means that MC Group will better reach wider groups of customers, and customers will conveniently shop at MC Group's points of sale. While opening new stores, MC Group analyzes all related factors such as location, population, target customers and purchasing power. MC GROUP strongly believes in the growth potential of lifestyle product and apparel businesses as well as other inherent business opportunities that may arise.
MC Group therefore plans to expand its product range into lifestyle retail such as McT (Tops), Accessories and Luggage. MC Group has appointed sales agents in Myanmar, Laos and Vietnam for the expansion of MC brand to those countries. MC Group intends to further expand into other markets under AEC including Indonesia, Malaysia as well as Cambodia.
In addition to the mentioned strategies, MC GROUP has recognized that human resource development is a key catalyst to support its business growth. MC Group's human capital strategy covers talent acquisition to competency development to promote career progression in the organization.
Valuation
- Discounted Cash Flow Model: FCFF
- Projected Cash Flow and Assumptions
- Sensitivity Analysis
While the company expected to grow the point of sale by about 70 stores since 2015, it can't afford the target, so I would expect a lower number of points of sale from the target to be almost equal to the point of sale growth in 2015 at 40 stores. For cost of sales, I calculate using average percentage cost of sales for sales for the last 5 years, which is 48% of sales. For SG&A, it is calculated by averaging SG&A over sales over the past 5 years, which is 13.81%.
When the company hires nearly enough people for business expansion, the percentage of these expenses to sales will decrease, so I reduce the percentage of labor and related expenses to 13.55% of sales. The advertising expenditure to sales for cost projection is 0.9% of sales which I expected to increase slightly from the average advertising cost to sales over 5 years due to intense competition in the apparel market. The cost of debt was determined by comparing the current percentage interest expense with 2 year average interest bearing debt, which is approximately 7.5% before tax, with the weighted average cost of debt of the short term debt, capital leases and long term bank loan. .
Then calculating the cost of equity capital, I use the risk-free interest rate at 2.88% from the 10-year government bond, the market risk premium at 8.15% based on Moody's rating, and adjust for relative stock market volatility from Damodaranand. I also find sensitivity analysis to see the range of possible price if the weighted cost of capital (WACC) and the constant growth rate change.
Financial Analysis
- Profit and Loss statement
- Balance Sheet
- Common Size Analysis
- Trend Analysis
- Financial Ratio Analysis .1 Return
Cost of goods sold affects the company's gross profit, while MC Group maintains gross profit margin at 54.42%, which is higher than Levistrauss and VF Corporation. In conclusion, MC Group has better control over costs as the cost of goods sold through interest charges is similar to that of Levistrauss and VF Corporation, with these costs impacting each company's bottom line. For accounts receivable, MC Group maintains a lower accounts receivable level in 2014 compared to 2013, even if turnover increases.
While the gross profit margin of MC Group increased slightly from 39.05% in 2010 to 54.42% in 2014 because MC Group is able to reduce the cost of goods sold by maintaining economies of scale, but the gross profit margin of Levi Strauss and VF Corporation is constant over 5 years. The EBIT margin of MC Group is very high on average compared to Levi Strauss and VF Corporation, the average EBIT margin of MC Group, Levi Strauss and VF Corporation is 12.79% respectively. In 2013 and 2014, the net profit margin of MC Group was almost equal to EBIT margin because MC Group also generates interest income from investment.
This statement may imply that MC Group is efficiently using assets to generate return compared to competitors. While the trend of ROA for MC Group was decreasing in 2014 due to high inventory level in 2014. ROE of MC Group is decreasing significantly since 2012 because the company was listed on SET in 2013 so that capital increased significantly since 2013 which causes less ROE.
Comparing MC Group's ROE with other competitors, MC Group has a higher 5-year ROE level as shown in the chart below.
Current Ratio
The debt-to-equity ratio, used to measure a company's leverage, therefore shows how much debt a company uses to finance its assets relative to the value represented in equity. Comparing MC Group's debt to equity ratio with its competitors, MC Group maintains a very low debt to equity ratio of 0.05x in 2014, while VF Corporation has a slightly higher debt to equity ratio of around 0 .25 times, but both companies still have low long-term solvency risk. While Levi Strauss has a very high debt-to-equity ratio of 4.71 times in 2014, which means the long-term solvency risk is high.
D/E Ratio
Investment Risks
- Industry Risk (related to Apparel and Lifestyle Product Retailing Business)
- Business Risks
- Risks related to Product Sourcing
- Legal Risks (related to Laws and other Trade Regulations and Practices)
However, MC Group realized the fact that reliance on these large retailers put the company at risk as it had low bargaining power. In addition, the Company is currently developing and implementing its Enterprise Resource Planning (ERP) to improve efficiency in all related business processes. However, the company considered owning a factory as an option depending on the business expansion opportunities.
Currently, the Company has already established a strong foothold in several ASEAN markets outside of Thailand such as Laos, Vietnam and Myanmar. In addition, the Company has maintained good relations with property owners by strictly respecting the lease, as well as helping to attract more customers to those stores or other properties. As a result, the Company has never faced contract cancellation or contract renewal rejection.
The Company risks its sales revenue as a sales agent in the event of a fixed-term contract where the counterparty may not renew the contract. In case of changes to the agreements, especially the level of compensation, the company will arrange for negotiations in the best mutual interest of both parties.
DATA
- Shareholding Structure of the Group of Companies
- Major Shareholders and Free – float
- Management and Organization chart
- Corporate Governance (CG)
- Trademarks
- Income Statement
- Balance Sheet
- Statement of Free Cash Flow
- SWOT Analysis
- Five Force Analysis
Accordingly, the Company follows the guideline of the Code of Best Practices for Directors of Listed Companies set by the Stock Exchange of Thailand regarding suitability and practicability for the Company. The Company has recognized the importance of the Rights of Shareholders and will not act in a manner that violates or diminishes any rights of shareholders. The Company will act impartially towards all shareholders, including management, non-management, foreign and minority shareholders.
The Company recognizes the importance of all stakeholders and will do its best to serve all parties. Shareholder; The Company is committed to protecting shareholders' interest in managing long-term equity value of the company with consistent returns and maintaining integrity and transparency. The Company deals with employment, appointment and transfer on a fair basis in order to maximize the use of human resources for the best interests of the Company.
The Company supports environmentally responsible products and services and acts according to the applicable environmental legislation. The ready-to-wear clothes and clothes manufactured by the company and its subsidiaries consist of.
SWOT
Correlation matrix (Competitors)
