Equity Research M exico

August 02, 2021 Quarterly Report CHDRAUI www..com Concludes acquisition of Smart & Final @analisis_fundam

▪ Chedraui reported in line with our estimates. Revenues faced a high Consumer comparable base, particularly in the US, partially offset by a remarkable advance in 's SSS Marissa Garza Director of Equity Strategy ▪ Smart & Final's acquisition by Bodega Latina stood out. We will be [email protected]

incorporating this transaction in our estimates, while it will be relevant Juan Barbier, CFA to know the details of the deal Analyst [email protected]

Leads SSS growth in the sector. In Mexico, sales grew 10.3% y/y, reflecting an outstanding 7.8% SSS growth, leading the sector's increase, outperforming BUY Current Price $31.66 ANTAD self-service 6.5pp (+1.3%). However, a more complicated comparable PT $39.00 base in the US due to preventive purchases a year ago resulted in a 16.1% decline Upside Potential 23.2% Max – Mín LTM ($) 33.69 – 23.23 in the region's revenues, which were additionally affected by an adverse FX Market Cap (US$m) 1,515.5 effect. By contrast, in the Real Estate business, sales rose 42.9%, supported by Shares Outstanding (m) 963,917 Float 100% the recovery from the impact of the pandemic a year ago. As a result, consolidated Daily Turnover US$m 17.2 revenues contracted 1.8% y/y to MXN 35.749 billion. Meanwhile, EBITDA grew Valuation metrics LTM FV/EBITDA 5.3x 2.4% y/y to MXN 2.802 billion, with a 30bps expansion in the respective margin P/E 10.4x to 7.8%. The above is the result of a 15bps expansion in Mexico, due to lower MSCI ESG Rating* N.A. commercial aggressiveness and a more favorable sales mix —rebounding in apparel and general merchandise categories—, and a 13bps improvement in the Relative performance to Mexbol US as, despite the weakness in revenues, efficiencies in Fiesta Mart continued to LTM 50% pay off. Net income reached MXN 808 million (+25.2% y/y), supported by lower 40% interest payments due to debt reduction (2.5x ND/EBITDA). 30% 20% The focus is on the acquisition of Smart & Final. 10% The company announced the 0% completion of this purchase by Bodega Latina, the largest acquisition in its -10% -20% history, which will position Chedraui as the second largest chain in the country. -30% However, this transaction poses challenges in terms of profitability and leverage, Jul.-20 Oct.-20 Jan.-21 Apr.-21 Jul.-21 MEXBOL CHDRAUIB so it will be important to know more details. For the time being, we reiterate our

BUY rating and will be incorporating this business in our estimates later on.

Financial Statements Valuation and Financial metrics 2019 2020 2021E 2022E 2019 2020 2021E 2022E Revenue 129,443 146,287 146,508 155,662 FV/EBITDA 6.8x 5.3x 4.9x 4.3x

Operating Income 5,576 6,933 7,735 8,749 P/E 20.1x 11.8x 8.9x 7.4x EBITDA 9,127 10,788 11,210 12,182 P/BV 1.1x 1.0x 0.9x 0.8x EBITDA Margin 7.1% 7.4% 7.7% 7.8% Net Income 1,518 2,589 3,433 4,119 ROE 5.3% 9.1% 11.1% 12.0% Net Margin 1.2% 1.8% 2.3% 2.6% ROA 1.7% 2.9% 3.7% 4.2% EBITDA/ interest 4.5x 5.3x 6.5x 7.6x Total Assets 87,391 90,450 92,184 98,043 Net Debt/EBITDA 3.5x 2.5x 2.2x 1.8x Cash 984 5,445 6,289 8,974 Debt/Equity 1.2x 1.1x 0.9x 0.9x Total Liabilities 59,983 61,168 59,756 61,881 This document is provided for the reader’s convenience Debt 32,822 32,588 30,480 31,120 only. The translation from the original Spanish version was Common Equity 27,409 29,281 32,428 36,162 made by Banorte’s staff. Discrepancies may possibly arise Source: Banorte between the original document in Spanish and its English translation. For this reason, the original research paper in Spanish is the only official document. The Spanish version was released before the English translation. The original document entitled “Concluye la adquisición de Smart & 1 Final” was released on July 29, 2021. Document for distribution among public

CHDRAUI – Results 2Q21 Revenue & EBITDA Margin MXN, million MXN, million Diff% vs Concept 2Q20 2Q21 Var % 2Q21e Estim. Revenue 36,409 35,749 -1.8% 36,862 -3.0% Operating Income 1,762 1,922 9.0% 1,966 -2.3% 40,000 7.8% 8% Ebitda 2,737 2,802 2.4% 2,828 -0.9% 8% 7.5% 7.6% Net Income 645 808 25.2% 892 -9.4% 38,000 7.5% 8% Margins 7.2% 7% Operating Margin 4.8% 5.4% 0.5pp 5.3% 0.0pp 36,000 Ebitda Margin 7.5% 7.8% 0.3pp 7.7% 0.2pp 7% Net Margin 1.8% 2.3% 0.5pp 2.4% -0.2pp 34,000 7% EPS $0.67 $0.84 25.2% $0.93 -9.4% 7%

32,000 7%

2Q20 3Q20 4Q20 1Q21 2Q21 Income Statement (Million pesos) Year 2020 2021 2021 Change Change Revenue EBITDA Margin Quarter 2 1 2 % y/y % q/q

Net Revenue 36,409 35,186 35,749 -1.8% 1.6% Costs of goods sold 28,197 27,426 27,686 -1.8% 0.9% Gross profit 8,212 7,760 8,063 -1.8% 3.9% General expenses 6,412 5,963 6,119 -4.6% 2.6% Net Income & ROE Operating Income 1,762 1,783 1,922 9.0% 7.8% MXN, million Operating Margin 4.8% 5.1% 5.4% 0.5pp 0.3pp Depreciation 975 856 880 -9.7% 2.9% EBITDA 2,737 2,638 2,802 2.4% 6.2% 900 12.0% EBITDA Margin 7.5% 7.5% 7.8% 0.3pp 0.3pp 9.6% 800 9.2% Interest Income (Expense) net (792) (691) (680) -14.2% -1.7% 8.8% 10.0% 700 Interest expense 495 483 465 -6.1% -3.8% 7.6% 600 6.6% 8.0% Interest income 21 29 19 -11.3% -33.6% 500 Other income (expense) (332) (234) (254) -23.5% 8.7% 6.0% Foreign exchange gain (loss) 14 (3) 20 46.4% N.A. 400 Unconsolidated subsidiaries N.A. N.A. 300 4.0% 200 Income before taxes 970 1,091 1,242 28.0% 13.8% 2.0% Income taxes 290 355 398 37.3% 12.0% 100 Discontinued operations N.A. N.A. 0 0.0% Consolidated Net Income 681 736 844 24.0% 14.6% 2Q20 3Q20 4Q20 1Q21 2Q21 Non-controlling interest 35 16 37 3.3% 132.0% Net Income ROE Net Income 645 721 808 25.2% 12.1% Net Margin 1.8% 2.0% 2.3% 0.5pp 0.2pp EPS 0.669 0.748 0.838 25.2% 12.1%

Balance Sheet (Million pesos) Total Current Assets 19,863 19,106 19,558 -1.5% 2.4% Net Debt & Net Debt to EBITDA ratio Cash & Short Term Investments 4,251 3,485 4,209 -1.0% 20.8% MXN, million Long Term Assets 72,674 70,072 69,204 -4.8% -1.2% Property, Plant & Equipment (Net) 33,693 33,046 32,827 -2.6% -0.7% Intangible Assets (Net) 2,658 2,386 2,281 -14.2% -4.4% 3.7x 40,000 4.0x Total Assets 92,537 89,178 88,762 -4.1% -0.5% 3.3x Current Liabilities 25,910 25,275 25,977 0.3% 2.8% 35,000 3.5x 2.7x Short Term Debt 6,688 3,929 4,666 -30.2% 18.8% 30,000 2.5x 2.5x 3.0x Accounts Payable 17,955 19,906 19,908 10.9% 0.0% 25,000 2.5x Long Term Liabilities 38,791 33,802 32,326 -16.7% -4.4% 20,000 2.0x Long Term Debt 34,193 28,879 27,113 -20.7% -6.1% 15,000 1.5x Total Liabilities 64,701 59,076 58,304 -9.9% -1.3% 10,000 1.0x Stockholders’ Equity 27,836 30,102 30,458 9.4% 1.2% 5,000 0.5x Non-controlling interest 29 13 45 56.8% 236.5% 0 0.0x Total Equity 27,807 30,088 30,413 9.4% 1.1% 2T20 3T20 4T20 1T21 2T21 Liabilities & Equity 92,537 89,178 88,762 -4.1% -0.5% Net Debt 36,631 29,323 27,570 -24.7% -6.0% Deuda Neta Deuda Neta EBITDA

Cash Flow CF from Operating Activities 1,673.1 (12,162.9) 2,440.6 CF from Investing Activities (619.2) 1,928.1 (524.1) CF from Financing Activities (184.8) 3,764.1 (1,184.5) FX effect on cash 224.1 50.8 (8.0) Change in Cash Balance 1,093.3 (6,419.9) 724.0

Source: Banorte, MSE.

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Certification of Analysts. We, Gabriel Casillas Olvera, Alejandro Padilla Santana, Delia María Paredes Mier, Juan Carlos Alderete Macal, Manuel Jiménez Zaldívar, Marissa Garza Ostos, Francisco José Flores Serrano, Katia Celina Goya Ostos, Santiago Leal Singer, José Itzamna Espitia Hernández, Víctor Hugo Cortes Castro, Hugo Armando Gómez Solís, Miguel Alejandro Calvo Domínguez, Luis Leopoldo López Salinas, Leslie Thalía Orozco Vélez, Gerardo Daniel Valle Trujillo, Eridani Ruibal Ortega and Juan Barbier Arizmendi, certify that the points of view expressed in this document are a faithful reflection of our personal opinion on the company (s) or firm (s) within this report, along with its affiliates and/or securities issued. Moreover, we also state that we have not received, nor receive, or will receive compensation other than that of Grupo Financiero Banorte S.A.B. of C.V for the provision of our services.

Relevant statements. In accordance with current laws and internal procedures manuals, analysts are allowed to hold long or short positions in shares or securities issued by companies that are listed on the and may be the subject of this report; nonetheless, equity analysts have to adhere to certain rules that regulate their participation in the market in order to prevent, among other things, the use of private information for their benefit and to avoid conflicts of interest. Analysts shall refrain from investing and holding transactions with securities or derivative instruments directly or through an intermediary person, with Securities subject to research reports, from 30 calendar days prior to the issuance date of the report in question, and up to 10 calendar days after its distribution date.

Compensation of Analysts.

Analysts’ compensation is based on activities and services that are aimed at benefiting the investment clients of Casa de Bolsa Banorte and its subsidiaries. Such compensation is determined based on the general profitability of the Brokerage House and the Financial Group and on the individual performance of each analyst. However, investors should note that analysts do not receive direct payment or compensation for any specific transaction in investment banking or in other business areas. Last-twelve-month activities of the business areas. Grupo Financiero Banorte S.A.B. de C.V., through its business areas, provides services that include, among others, those corresponding to investment banking and corporate banking, to a large number of companies in Mexico and abroad. It may have provided, is providing or, in the future, will provide a service such as those mentioned to the companies or firms that are the subject of this report. Casa de Bolsa Banorte or its affiliates receive compensation from such corporations in consideration of the aforementioned services.

Over the course of the last twelve months, Grupo Financiero Banorte S.A.B. C.V., has not obtained compensation for services rendered by the investment bank or by any of its other business areas of the following companies or their subsidiaries, some of which could be analyzed within this report.

Activities of the business areas during the next three months.

Casa de Bolsa Banorte, Grupo Financiero Banorte or its subsidiaries expect to receive or intend to obtain revenue from the services provided by investment banking or any other of its business areas, by issuers or their subsidiaries, some of which could be analyzed in this report.

Securities holdings and other disclosures.

As of the end of last quarter, Grupo Financiero Banorte S.A.B. of C.V. has not held investments, directly or indirectly, in securities or derivative financial instruments, whose underlying securities are the subject of recommendations, representing 1% or more of its investment portfolio of outstanding securities or 1 % of the issuance or underlying of the securities issued.

None of the members of the Board of Grupo Financiero Banorte and Casa de Bolsa Banorte, along general managers and executives of an immediately below level, have any charges in the issuers that may be analyzed in this document.

The Analysts of Grupo Financiero Banorte S.A.B. of C.V. do not maintain direct investments or through an intermediary person, in the securities or derivative instruments object of this analysis report. Guide for investment recommendations.

Reference

BUY When the share expected performance is greater than the MEXBOL estimated performance. HOLD When the share expected performance is similar to the MEXBOL estimated performance. SELL When the share expected performance is lower than the MEXBOL estimated performance. Even though this document offers a general criterion of investment, we urge readers to seek advice from their own Consultants or Financial Advisors, in order to consider whether any of the values mentioned in this report are in line with their investment goals, risk and financial position.

Determination of Target Prices

For the calculation of estimated target prices for securities, analysts use a combination of methodologies generally accepted among financial analysts, including, but not limited to, multiples analysis, discounted cash flows, sum-of-the-parts or any other method that could be applicable in each specific case according to the current regulation. No guarantee can be given that the target prices calculated for the securities will be achieved by the analysts of Grupo Financiero Banorte S.A.B. C.V, since this depends on a large number of various endogenous and exogenous factors that affect the performance of the issuing company, the environment in which it performs, along with the influence of trends of the stock market, in which it is listed. Moreover, the investor must consider that the price of the securities or instruments can fluctuate against their interest and cause the partial and even total loss of the invested capital. The information contained hereby has been obtained from sources that we consider to be reliable, but we make no representation as to its accuracy or completeness. The information, estimations and recommendations included in this document are valid as of the issue date, but are subject to modifications and changes without prior notice; Grupo Financiero Banorte S.A.B. of C.V. does not commit to communicate the changes and also to keep the content of this document updated. Grupo Financiero Banorte S.A.B. of C.V. takes no responsibility for any loss arising from the use of this report or its content. This document may not be photocopied, quoted, disclosed, used, or reproduced in whole or in part without prior written authorization from Grupo Financiero Banorte S.A.B. of C.V. History of PT and ratings MSCI ESG Rating scale Stock Date Rating PT CCC B BB BBB A AA AAA CHDRAUI B 9/1/2020 Buy $39.00 LAGGARD AVERAGE LEADER

CHDRAUI B 24/7/2019 Buy $39.00 *MSCI ESG Rating is an indicator that evaluates CHDRAUI B 25/2/2019 Buy $49.00 companies in Environment, Social and Governance CHDRAUI B 28/9/2018 Buy $52.00 (ESG) metrics.

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GRUPO FINANCIERO BANORTE S.A.B. de C.V.

Research and Strategy Gabriel Casillas Olvera IRO and Chief Economist [email protected] (55) 4433 - 4695 Raquel Vázquez Godinez Assistant [email protected] (55) 1670 - 2967 Lourdes Calvo Fernández Analyst (Edition) [email protected] (55) 1103 - 4000 x 2611

Economic Research and Financial Market Strategy Executive Director of Economic Research and Financial Alejandro Padilla Santana [email protected] (55) 1103 - 4043 Markets Strategy Itzel Martínez Rojas Analyst [email protected] (55) 1670 - 2251

Economic Research Juan Carlos Alderete Macal, CFA Director of Economic Research [email protected] (55) 1103 - 4046 Francisco José Flores Serrano Senior Economist, Mexico [email protected] (55) 1670 - 2957 Katia Celina Goya Ostos Senior Economist, Global [email protected] (55) 1670 - 1821 Luis Leopoldo López Salinas Economist, Global [email protected] (55) 1103 - 4000 x 2707

Market Strategy Manuel Jiménez Zaldívar Director of Market Strategy [email protected] (55) 5268 - 1671

Fixed income and FX Strategy Santiago Leal Singer Senior Strategist, Fixed Income and FX [email protected] (55) 1670 - 2144 Leslie Thalía Orozco Vélez Strategist, Fixed Income and FX [email protected] (55) 5268 - 1698

Equity Strategy Marissa Garza Ostos Director of Equity Strategy [email protected] (55) 1670 - 1719 José Itzamna Espitia Hernández Senior Strategist, Equity [email protected] (55) 1670 - 2249 Víctor Hugo Cortes Castro Senior Strategist, Technical [email protected] (55) 1670 - 1800 Eridani Ruibal Ortega Analyst [email protected] (55) 1103 - 4000 x 2755 Juan Barbier Arizmendi, CFA Analyst [email protected] (55) 1670 - 1746

Corporate Debt Hugo Armando Gómez Solís Senior Analyst, Corporate Debt [email protected] (55) 1670 - 2247 Gerardo Daniel Valle Trujillo Analyst, Corporate Debt [email protected] (55) 1670 - 2248

Economic Studies Delia María Paredes Mier Executive Director of Economic Studies [email protected] (55) 5268 - 1694 Miguel Alejandro Calvo Domínguez Senior Analyst, Economic Studies [email protected] (55) 1670 - 2220

Wholesale Banking Armando Rodal Espinosa Head of Wholesale Banking [email protected] (81) 8319 - 6895 Alejandro Aguilar Ceballos Head of Asset Management [email protected] (55) 5268 - 9996 Alejandro Eric Faesi Puente Head of Global Markets and Institutional Sales [email protected] (55) 5268 - 1640 Alejandro Frigolet Vázquez Vela Head of Sólida Banorte [email protected] (55) 5268 - 1656 Arturo Monroy Ballesteros Head of Investment Banking and Structured Finance [email protected] (55) 5004 - 1002 Carlos Alberto Arciniega Navarro Head of Treasury Services [email protected] (81) 1103 - 4091 Gerardo Zamora Nanez Head of Transactional Banking, Leasing and Factoring [email protected] (81) 8318 - 5071 Jorge de la Vega Grajales Head of Government Banking [email protected] (55) 5004 - 5121 Luis Pietrini Sheridan Head of Private Banking [email protected] (55) 5004 - 1453 Lizza Velarde Torres Executive Director of Wholesale Banking [email protected] (55) 4433 - 4676 Osvaldo Brondo Menchaca Head of Specialized Banking Services [email protected] (55) 5004 - 1423 Raúl Alejandro Arauzo Romero Head of Transactional Banking [email protected] (55) 5261 - 4910 René Gerardo Pimentel Ibarrola Head of Corporate Banking [email protected] (55) 5268 - 9004 Ricardo Velázquez Rodríguez Head of International Banking [email protected] (55) 5004 - 5279 Víctor Antonio Roldan Ferrer Head of Commercial Banking [email protected] (55) 5004 - 1454

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