CP All

With the runaway success of CPALL’s stamp promotion in 2H, revenue and earnings are once again set to accelerate. The long-term competitive outlook has also improved given Central’s not-so-aggressive expansion plan for its Family Mart stores. We raise our FY12  earnings forecast for stronger sales during the seasonally-soft 2H but trim FY13-14 due to higher SG&A expenses. We roll over our DCF-based target price (10.4% WACC, 3.3% LTG), which implies 25.3x CY14 P/E, raising it. Our previous target basis was 26.6x CY13 P/E. Maintain Outperform as competitor expansion risks ease. 

Stamp promotion driving a typically weak quarter

7-11’s yearly stamp redemption promotion returned this year, after being cancelled in 2011 due to flooding. The promotion has been more successful than we, or the company anticipated as CPALL’s suppliers have discounted items more
heavily than in previous years in an attempt to reclaim market share post floods. This causes us to update our FY12 SSSG and revenue estimates.However, we also increase our SG&A expenses due to higher expected utilities costs.

Long-term competitive outlook improving

The competitive outlook for CPALL now appears more favourable. The Central retail group has outlined a 3,000-store target within 10 years after purchasing 700 Family Mart branches in August, which implies expansion of around 200-250 convenience stores (CVS) per year, which is less aggressive than we had expected. Expansion by other competitors appears to be slowing.With CPALL’s 500-store per year target, we expect CPALL’s market share to remain above 62% in 2015. Its market share could increase as we believe CPALL will have to eventually accelerate expansion plans in order to maintain earnings growth.

Still an Outperform

Due to CPALL’s outperformance YTD, we believe that the market is being overly cautious about re-rating it. We see further upside given upcountry expansion, a dynamic product mix and lower competition.