CP All

CP All Plc (CPALL)

Earnings in line with estimate: CPALL reported a 4Q11 net profit of Bt1.52bn, up by 2% YoY but down 27% QoQ. The figure was in line with our estimate but 5% below the consensus.
Results highlights: Revenue rose 7% YoY to Bt39bn. SSSG (excluding mobile top-up card sales) was 1.5% for 4Q11 and 4.8% for FY11. Excluding stores closed by the flooding, 4Q11 SSSG would be 3.2%. Another 70 new outlets opened in 4Q11, bringing the total number that debuted last year to 486, slightly short of CPALL’s target of 500, due to inundation. At YE11, the firm had 6,276 7-Eleven locations.
Product margin in FY11 expanded by 20 bps to 25.1%, driven by a 70 bps increase in non-food margin brought about by robust growth in sales of personal care items for men. Food margin in FY11 was 25.5%, unchanged YoY—food margin was squeezed in 4Q11 because sales of fat-margin ready-to-eat products declined, due to supply disruptions related to the flooding, while sales of low-margin processed food, such as instant noodles, rose.
CPALL announced a cash dividend of Bt1.25/share and a stock dividend at a ratio of 1:1. The XD date is May 3 for both the cash and the stock dividends. The reason behind the stock dividend is that CPALL wants to increase the number of shares trading on the SET in order to attract bigger funds. The fundamentals remain unchanged.
Outlook: We expect strong bounce in 1Q12, as all operations have normalized since late December. Margin should resume an uptrend, as more fat-margin ready-to-eat food items are being added to the merchandise mix and CPALL targets rolling out fat-margin chilled food to 2,500 stores by YE12, up from 1,700 outlets currently.
What’s changed? We maintain our earnings forecast and target price unchanged for the moment. However, after the XD our EPS and target price will be cut by half to reflect the 50% dilution effect of the stock dividend.
Recommendation: Our BUY rating stands with a YE12 target price of Bt64 (before the XD).