CPALL

CPALL Plc
-Temporarily affected by Baht weakness. Significant fx loss foreseen in 3Q13
CPALL’s current Dollar debt used for funding the acquisition of MAKRO
equates to US$5.8bn. At end-2Q13, the company started to recognize this
item in Thai Baht, at an exchange rate of B31.2/US$, and will recalculate the
Baht debt at the end of every quarter using a mark-to-market method.
Although the exchange rate has lately weakened from end-2Q13, the Baht
tends to strengthen from now on (the current rate is B32/US$) along with
increasing fund inflow throughout the region and reviving export sector.
However, the company still has a risk of facing a Fx loss (unrealized). In the
worst case scenario that CPALL has made a Fx hedge for only 60% of its
debt, the company might suffer a Fx loss of not lower than B1bn (calculated
on an exchange rate of B32/US$), which is significant when compared with
its quarterly profit base of around B3bn (every B1 weakness will depress the
net profit by 20%). However, as the Baht is appreciating, the significant Fx
loss would affect the earnings only in 3Q13. In addition, the company would
gradually refinance the debt since late 4Q13. Preliminarily, it has planned to
issue bonds of up to B90bn (A+ rating) to refinance as much as possible
Dollar debt into Thai Baht in order to close the Fx risk since 4Q13 onward.
- 2H13 profit to decline from 1H13. Norm profit still increases
Apart from the aforementioned Fx risk, CPALL is starting to consolidate its
financial statement with MAKRO’s since 2H13 onward (CPALL holds 97.88%
stake in MAKRO). In an early period, MAKRO’s profit would still be lower
than the debt caused by the acquisition, so 2H13 profit would be worse than
1H13, especially in 3Q13 that is a year’s low. However, norm profit in 3Q13
would remain good because of the well-responded stamp promotion
campaign adopted since late July. We maintain our forecast, still not
including the Fx loss as we are waiting to assess the effect.
- Healthy fundamental despite temporary pressure
Despite the temporary pressure from the Fx rate, we hold a positive outlook
toward the company’s healthy fundamental factors. Earnings growth of
33%yoy is projected next year. We reiterate to buy (FV@B53), gradually
accumulating when the price weakens.