CP All
Feel good factors... USD6.6bn acquisition of MAKRO by CPALL
- CPALL (CPALL TB, Neutral) disclosed today that it plans to acquire a
65% stake in Siam Makro (MAKRO TB, Reduce) from SHV for
USD6.6bn. If the deal is approved by shareholders, it will become the
largest M&A in Thailand’s history. The deal implies MAKRO’s share
price of THB787, which is nearly 50x 2013F P/E (2013F EPS of
THB15.7), according to our estimate. Currently, both CPALL and
MAKRO are suspended from trading. The deal is not only the biggest,
it is also among the most expensive for acquisitions above USD2bn in
Thailand’s history as well.
From the top-down perspective: reaffirms our positive view
- The acquisition helps to highlight how the major players (in this case
CP Group) view Thailand in the mid- to long-term because at an
earnings yield of only ~2%, it will take a while for CPALL to recover its
investment. We believe our anchor themes-urbanization and ASEAN
Economic Community (AEC) also play major roles in CPALL’s longterm
strategic plan for MAKRO.
- The fact that CPALL will use 90% debt financing also helps to reiterate
our view that the cost of debt in Thailand is very attractive in the
corporate’s view. While this is a prudent WACC exercise, it could be
risky in the event that the economy in Thailand were to substantially
slow because CPALL will use short-term debt to finance long-term
investment. We note that all of the last three major M&A deals by the
Thai corporate have been backed by debt financing.
How do we play this?
- In our opinion, the best way to play MAKRO’s acquisition is actually
via Big C Supercenter (BIGC TB, Buy). At the acquisition price of
THB787, MAKRO is trading at nearly 50x 2013F P/E vs BIGC’s 23.4x
(2013F EPS of THB9.2), on our estimates.
- We think Siam Commercial Bank (SCB TB, Buy), as the financial
advisor for the deal, should also benefit from both investment banking
fees and potential lending to CPALL to finance the transaction.
Investment theme and focus stocks
-We reiterate our long-term bullish view on the SET with a 12M SET
index target of 1666. The USD6.6bn deal above, in our view, is a good
example of the positive outlook projected by the Thai corporate.
- We believe that there could be a short-term correction in the Thai
market. That could represent good buying opportunity.
- As for our focus stocks, we are replacing BBL with KBANK on the
back of the below-expectation 1Q13 results by BBL. We also take out
QH and replace it with SIRI because of recent performance of QH.
Overall, our focus stocks are: KBANK, KTB, AIS, BCP, PTTGC, PS,
SIRI, SCC, GLOW, and BIGC.
