Big C Supercenter

Big C Supercenter Plc (BIGC)

- BIGC to open fewer new branches and set conservative goal
According to the latest analyst meeting, BIGC has to invest more
carefully because of the slowing economy. BIGC aims to open fewer new
branches: four branches of hypermarket, eight branches of BIGC
Market, 40 branches of Mini BIGC and 20 branches of Pure Pharmacy
(versus six branches of hypermarket, 12 branches of BIGC Market, 153
branches of Mini BIGC and 41 branches of Pure Pharmacy in 2013).
FY2014 overall sales are projected to grow by only 6-7% (rising 5.4% in
2013). FY2014 EBITDA margin is expected at 11.1%, 20bps lower than
2013. 2013 EBITDA margin base was higher than usual. Profitability was
high and operating cost was declining from 2H13 on. The opening of two
warehouses in 2014 is not likely to boost EBITDA margin as rapidly as in
2013. Thus, FY2014 net profit is likely to grow less than sales volume,
likely to stay flat yoy.
- Nationwide sluggish economy affects main customers
BIGC's conservative goal reflects that BIGC has been threatened by the
slowing economy. Purchasing power from BIGC's main customer base
(lower- and middle-class customers) is expected to decline, as 1.4
million households of farmers have been waiting for payment from ricepledge
scheme. Fierce competition has been pressing EBITDA margin.
Moreover, other income, especially subsidies from suppliers and media
income sharing from VGI's advertising space business (10-15% of other
income), is likely to grow at a slower rate. VGI has revised down its
target of income from modern trade media from 30% to 5%. As a result
of sluggish purchasing power, though FY2013 net profit was 12%
beyond our expectation, we maintain our FY2014 profit forecast at
B6.9bn, close to 2013 (6% below consensus).
- Possibly at downtrend. Hard to expect for positive surprise
The effect from the political turmoil and slowing economic would be
severe in 1Q14. Share price is possibly at downtrend. Though expected
PER is currently close to the previous average, it is not a good entry
point. We recommend "SELL" (FV@B193).