Top Home Improvement Stock Isn't Afraid of Ikea's Market Entry

(Bloomberg) -- Wilcon Depot Inc., the world's best-performing home improvement retail stock, is moving up its expansion plan as Swedish furniture giant Ikea Group plans to invade the rapidly growing Philippine housing market.

The Manila-based company opened five new stores in 2017 and plans 24 more by 2020, a year ahead of schedule, founder William Belo said in an interview. That will give Wilcon a total of 65 outlets nationwide when Ikea's first location opens that same year.

“Ikea will be more complementary rather than a competitor to us," said 72-year-old Belo, who oversees strategy as chairman emeritus while leaving day-to-day operations to his three children. “We are more watchful of local competition because many players are turning aggressive."

Shares of Wilcon have rallied 30 percent this year, defying the Philippine Stock Exchange Index's 9.6 percent loss and beating 52 other home products retailers worldwide worth at least $500 million. The stock is riding a boom in home construction, which has roughly tripled in value over 13 years and is expected to continue expanding as the government pursues 7.6 trillion pesos ($147 billion) of infrastructure projects through 2022.

Read: Ikea targets four to six Philippine stores in five to 10 years.

‘The market is there'

While Ikea is looking to establish a foothold with its first store in Manila, Belo sees the capital as already saturated. Only one of Wilcon's planned openings over the next three years will be in metro Manila while the rest will be in provincial cities, which the founder believes should drive volume expansion and help cut logistics costs.

“There are so many greenfield areas,” said Belo, who started Wilcon in 1977 with a 60-square-meter shop. “We have the funds and the sites. The market is there.”

Wilcon's same-store sales increased 5.5 percent in the first quarter, and overall revenue may rise more than 15 percent this year, helped by the addition of new stores, Belo said. The outlook could help support continued share-price gains for Wilcon, which listed in March 2017, according to Julian Tarrobago, head of equities at ATR Asset Management Inc.

“The stock is still at an early stage of its growth cycle so it's a nice place to be in,” Tarrobago said.

‘So much construction'

In addition to Ikea, Wilcon faces local threats including Citi Hardware Inc., which has expanded out of Davao and now has over 50 stores nationwide. AllHome, a venture of billionaire developer Manuel Villar which has opened 16 outlets since it started in 2013, is also on Wilcon's heels.

Belo is unruffled by the mounting competition, citing Wilcon's wide range of products, more agile format than Ikea's 300,000-square-foot megastores and its diversified customer base, with individual homeowners and small contractors accounting for as much as 98 percent of revenue. Any advantages aside, there may just be enough to go around.

“There's so much construction going on,” Belo said. “Even old stores that we didn't expect to grow because of traffic and competition are showing significant growth.”

To contact the reporter on this story: Ian Sayson in Manila at isayson@bloomberg.net.

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Kurt Schussler, Margo Towie

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