Big C Supercenter

Big C Supercenter Plc (BIGC)

Investment thesis: We have increased our FY12 earnings forecast by 9% and raised our YE12 target price to Bt156 to reflect higher-than-expected synergystic value. The overhanging unclear capital increase plan should be resolved soon, which would enable aggressive expansion and growth. BIGC’s FY12 PER is now only 17.9x—the cheapest in the sector. Our BUY rating stands.
4Q11 recap: Although the flooding caused same-store sales to decline 5% YoY in 4Q11, making for flat SSSG for the year, the firm still posted robust earnings of Bt2.4bn for 4Q11, up by 221% YoY and 196% QoQ. Synergies built after the acquisition of Carrefour’s Thai operation (mainly from better purchasing terms) and insurance claims of Bt645m were the two drivers. BIGC achieved Bt1.7bn of run-rate EBITDA level synergies during FY11 versus an initial target of Bt1.2bn by FY13. As a result, adjusted EBITDA margin improved 151 bps to 11.1% in FY11 (up 285 bps YoY to 13% in 4Q11).
Aggressive expansion plan being pushed back: BIGC previously targeted having hypermarkets and BigC markets totaling 300 stores and 950 mini BigC convenience stores operating by YE15, up from 108 hypermarkets 12 BigC markets and 52 mini BigCs at YE11. However, the planned cash call of Bt25bn could not proceed, due to a technical problem with shareholders. As such, BIGC will this year roll out only four hypermarkets, two BigC markets and 75-100 mini BigCs, so targets top-line growth of only 9-10%.
Property fund—a new catalyst? The resolution of the stalled capital increase plan should be clear at the close of the next board meeting in March. In the case that the plan were to be scrapped, we believe BIGC would find an alternative route to finance its aggressive expansion ambitions, otherwise it would lose market share to Tesco Lotus, which also plans an aggressive expansion soon after monetizing assets through TLRG property fund. We think BIGC may also consider using a property fund as a financing vehicle. We prefer this option over a cash call, as there wouldn’t be any share dilution, but instead a huge gain on asset spin-offs.
Another catalyst: BIGC may soon conclude an exclusive partnership with an oil company to open mini BigCs in gas stations, similar to CPALL’s deal with PTT.