CP ALL
HOLD Q2 2012's profit affected by wage raise as expected, but still increases 20% yoy
CP ALL Plc (CPALL)
2Q12’s profit falls 6%qoq due to wage raise, but still increases 20%yoy as expected
Although sales in 2Q12 have grown 6%qoq, the profit has dropped 6%qoq as expected as a result of the minimum wage raise for the first quarter in 2Q12. However, year on year (yoy) the profit still
increased 20% from notable same-store-sales growth of 10.5%,thanks to the hot weather in April and May, UEFA EURO 2012 in June, and 547 new stores opened in 3Q11-2Q12 which have
boosted total sales by 17%. Meanwhile, gross margin has continued increasing from 24.8% in 2Q11 to 26.1% in this quarter from the growth in sales of food and beverage which have higher margin than other goods. However, due to the effect from the minimum wage raise, employee expense in this quarter has risen by B350m for 9 employees per each of CPALL’s 3,078 stores (46% of its total stores because the company does not have to be responsible for the employee expense for the franchises). Accordingly, SG&A/sales has increased from 21.6% in 2Q11 to 23.4%. Nevertheless, the expense has been offset by a corporate income tax cut, so net margin in this quarter has remained close to 2Q11’s at 5.6%.
Earnings to improve in 3Q12 from “7-11 Stamp” promotion
With the benefit from a launch of the biggest promotion campaign “7-11 Stamp” during 26 July – 25 November 2012 instead of November-February as usual, same-store-sales in 3Q12 are
projected to grow remarkably by at least 8-9% and would help compensate a rise in selling expense. Profit in 3Q12 tends to increase from 2Q12, while SG&A recognition will be highest in 4Q12 as normal due to year-end accounting adjustment, so profit in 4Q12 would weaken from 3Q12. However, compared with the same period last year, profit in 3Q12 and 4Q12 would still exhibit the high growth. Moreover, the 2 quarters would also benefit from an opening of 384 stores in 1H12 which would be able to reach our target of 530 new stores in 2012 and boost FY2012’s profit by 34%yoy to B10,748m.
Upside is still limited. In short term recommend HOLD. Fair value is B36
The share price has a limited upside of only 8% from the fair value (at B36). However, we will use 2013’s fair value at B42.6 after 3Q12’s earnings declaration. In the short term we still recommend
“HOLD” to wait for increased fair value.
