Siam Makro

Siam Makro Plc (MAKRO)

Overshot estimate: MAKRO reported a 4Q11 net profit of Bt678m, up by 43% YoY and flat QoQ. The figure was 35% above our estimate and the consensus. Excluding Bt238m in expenses related to flooding, core profit in 4Q11 would be Bt916m. FY11 net profit was Bt2.6bn, up 38%.
Results highlights: 4Q11 sales increased by 14.7% both YoY and QoQ to Bt27bn, as expected, driven by 7% SSSG and the openings of four new stores last year—Ratchburi, Chiangmai, Ayudhya and Lampang. Gross margin pitched a positive surprise, expanding by 100 bps YoY and 33 bps QoQ to 8.64% in 4Q11, making for 7.95% in FY11. Improved operating leverage caused the SG&A expenses/sales to 5.84% in 4Q11 (down 32 bps YoY) and to 6.25% in FY11 (down 27bps).
Outlook: We expect a strong QoQ improvement in 1Q12, due largely to the absence of flooding-related expenses. The long-term growth outlook is also good, underpinned by MAKRO’s blue-ocean strategy to expand its HoReCa  customer base.
What’s changed? Our FY12 earnings forecast stands unchanged for the moment, but we may revise up our projection and target price if the information offered at the analyst meeting next week makes us confident in the sustainability of the impressive gross margin.
Recommendation: MAKRO remains our top pick in Thai retail space. Our BUY rating stands with a YE12 target price of Bt330.