Siam Makro

Siam Makro Plc (MAKRO)
In line with estimate: MAKRO reported a 1Q12 net profit of Bt864m, up by 26% YoY and 27% QoQ. The number was in line with our estimate, but 7% above the consensus.
Results highlights: The top-line rose 18% YoY and was flat QoQ at Bt27bn, slightly higher than our estimate, probably due to stronger-than-expected SSSG (we assumed 6%). Note that actual SSSG will be announced at the analyst meeting on May 17. Gross margin was in line with our model at 7.94%, up 34 bps YoY even though there were supply shortages of some HoReCa items during the quarter.
However, SG&A expenses increased 23% YoY to Bt2.17bn, which was more than our estimate and also offset the impact of the higher-than-expected top-line. The heavy SG&A may have been due to pre-opening expenses for new stores and/or early adjustments for a new salary base in order to comply with government policy (the minimum wage rose 40%, effective April 1). That point should also be clarified at the analyst meeting.
Outlook: We expect profit to soften slightly QoQ in 2Q12 because of seasonality. But in YoY terms, earnings should increase robustly in the quarter and sustain growth through 2H12, driven by moderate SSSG and strong margin expansion.
What’s changed? We maintain our FY12 forecast unchanged for the moment, but may revisit it after meeting with management on Thursday.
Recommendation: The stock has already reached our YE12 target price, but we believe there is some room to upgrade, as our long-term growth assumptions (both for the number of stores to be rolled out and margin expansion) now seem too conservative. As such, our target price and recommendation are UNDER REVIEW at the moment.