Siam Makro

Siam Makro Plc

At the analyst meeting yesterday, MAKRO said it would be opening two new stores in
4Q12 vs. earlier guidance of three (all already opened in 1H12). While we fine-tuned
our forecast to factor in a more aggressive store rollout over the next three years we
remain “Neutral” on the stock because: 1) MAKRO is trading on 25x PER 2012F – more
than +1std (since last year the stock has already re-rated from trading below historical
average) and 2) we are not enthusiastic on its expansion plan as the cash & carry and
hypermarket formats risk approaching saturation upcountry. The stock price has
doubled since early 2011 and there is little upside even to our raised target price of
Bt400/sh.

Key takeaways from analyst meeting:

- Two new stores are under construction, in Petchaboon and Bangplee, and are scheduled to be  

  opened in October and November respectively.
- MAKRO will open a total of five new stores this year (vs. earlier guidance of three),
  bringing its store count to 57. It gave no guidance for next year; we now assume
  five stores (vs. three earlier) for 2013-14 as management seems more aggressive
  and eager to open stores quickly before new building laws are enacted.
- Contradicting reports in the papers, the CEO states categorically that the major
  shareholder in Holland has not been in talks to sell its stake in MAKRO, nor does it
  have any intention of selling.
- The hotel, restaurant and catering segment (HORECA) continued to show strong
  growth, evident in the strong rise in SSS in high-margin fresh-food products of
  12.6% in 2Q12. Overall SSS growth was strong for the quarter at 9.1% (1H12 at
  10.3%).

Maintain our “Neutral” rating. We raise our profit for 2012 by 2%, 2013 by 5% and
2014 by 10%, mainly to factor in MAKRO’s more aggressive expansion plan (from three
to five new stores p.a.). This raises our 12-month target price to Bt400/sh from
Bt370/sh, to which there is only 10% upside from current share price. YTD, MAKRO stock
price is already up 52% following an increase of 41% in 2011 in response to its
significant earnings beat in all four quarters of 2011, followed by better than expected
(slightly) earnings in both for 1Q12 and 2Q12. We believe our earnings forecast for this
year (which lines up with consensus) is already on the high side, as it implies 3Q12
earnings growth of 32% to Bt884mn with a new high for earnings in 4Q12 of B1.0bn
(+20% YoY).