CP All

CP All Plc   
Beat our estimate
CPALL reported a 3Q13 net profit of Bt2.66bn, down 8% YoY and flat QoQ. Stripping out an FX loss of Bt391m, core earnings would be Bt3.05bn, up by 7% YoY and 17% QoQ, beating our estimate and the consensus number by 37% and 35% respectively, due mainly to lower fees related to the acquisition of MAKRO than assumed and stronger-than-expected other income and MAKRO numbers. Note that MAKRO reported a net profit of Bt1.0bn, up 36% YoY, driven by robust SSSG of 7.1%, GM expansion and cost-saving programs.
Results highlights
The top-line jumped 70% YoY to Bt82bn, mainly due to the financial consolidation of MAKRO. Excluding MAKRO, CPALL sales rose only 8% YoY, as there was a change in the accounting policy for booking phone card sales from revenue to service fees (booked as “other income”). Stripping out phone cards, sales would have increased 13% YoY.
SSSG was 4.6% in 3Q13, driven by a 5% increase in basket size to Bt63, while the number of tickets was maintained flattish at 1,258 tickets/store/day. This proved the effectiveness of the stamp campaign in encouraging customers to buy more per visit.
Expansion remains ahead of schedule. During 3Q13, CPALL opened 109 outlets, taking the number of new stores opened in 9M13 to 497—90% of its FY13 target of 550.
CVS gross margin (ex-T&E) expanded by 20 bps YoY to 25.7%, driven by a 30 bps YoY increase in food margin. The SG&A/sales ratio (ex-MAKRO) jumped to 27.5% in 3Q13 from 23.4% in 3Q12 and 24.1% in 2Q13, due to the second round of the minimum wage rise in January and higher utilities costs and fees tied to the acquisition of MAKRO.
Outlook
We expect the 4Q13 profit to soften slightly QoQ, as the effect of higher interest expenses won’t be fully offset by peak earnings season for MAKRO. However, we believe that earnings will bottom out in that quarter. Robust growth should follow next year, led by the absence of fees related to the acquisition, stronger MAKRO numbers and synergistic benefits.
What’s changed?
We have upgraded our FY13-14 earnings forecasts by 4% and 2%, respectively, to reflect better-than-expected results and MAKRO earnings. Our YE14 target price rises to Bt48 from 47.50.
Recommendation
Short-term weak earnings are behind us. We believe that expectations of CPALL reporting soft 2H13 numbers are already priced in. Our BUY rating stands with a YE14 target price of Bt48.00.