CPALL

CPALL Plc
What’s new?
At the EGM on Sep 19, 2013, shareholders (98% voted) approved the issue of bonds
of up to Bt90bn to repay loans and/or be used as working capital.
Comment.
The issue of a bond is one portion of its plans to pay off a one-year bridge loan of
US$5-6bn taken out to fund the purchase of MAKRO. CPALL is considering other
options as well, including a long term loan with banks and monetizing its real
estate portfolio (e.g., property fund/REIT).
Its Bt90bn bond is rated “A+” by Fitch Rating (Thailand). Based on recent news,
CPALL plans to offer the first tranche of up to Bt40bn in late Oct 2013.
We are positive on the THB-denominated bond issuance, mainly as it will reduce
its exposure to volatility in FX rates inherent in its US$-denominated bridging loan
(unhedged position at ~30% in Sep 2013).
The recent appreciation of THB/US$ will alleviate the concerns about a massive FX
loss on its US$ denominated loan. If THB/US$ stays at current level (Bt31.0/US$ on
19 Sep 2013 vs. Bt31.1/US$ on 28 June 2013, based on BoT) until the end of 3Q13F,
we estimate that CPALL will record a small FX gain in 3Q13 rather than the huge
loss of over Bt1bn on the early September rate.
Normalized profit will bottom in 3Q13, pulled down by interest expenses and fees
related to the purchase of MAKRO. Things will be better in 4Q13 as fees related to
the MAKRO deal will be lower. The climate will be much improved in 2014 as
synergies from the acquisition come into play.
We maintain BUY on the counter with mid-14 DCF PT at Bt52. Despite the surge in
share price yesterday, CPALL is still a laggard play, -14% in 2013TD,
underperforming the sector by -13% and the SET by -19% throughout the period,
and we feel the weak 3Q13 is already priced in. We like CPALL for its compelling
valuation, trading at 23x 2014PE (+0.5SD from its 10-year PE) and its impressive
long-term EPS growth of 34% in 2013-15F, as business synergies materialize and
expenses related to acquisition come down. Key risks are a change in SSS growth,
store expansion, business synergies and the expenses from the acquisition.