CPALL

CPALL Plc

Upcoming debt refinancing could lower cost of funds
Expect 1Q14 net profit at Bt3bn, -5% YoY but +42% QoQ
BUY with unchanged 12-month DCF PT at Bt52

- Debt refinancing progressing. Last year, CPALL took out a one-year US$-
denominated bridging loan with banks of US$5.8bn (Bt180bn) to fund the purchase of
MARKO. All-in cost of funds was ~5% and maturity is in June 2014. Of this, Bt50bn was
replaced by baht debentures in Oct 2013, with average cost of funds at 4.84%. Then this
March, more baht debentures were issued, replacing Bt40bn more, with average cost
of 4.70%. The remaining Bt90bn will be refinanced by long-term bank loans, expected
to be finalized within 1-2 months; it previously said cost of funds on this will be 5-6%.
- Good timing: interest rates are coming down. MLR of four banks has been cut 25
bps over the past few months to 6.75% now – making this a good time to refinance.
We maintain our assumed cost of funds at 5.3% on debt refinancing of Bt180bn: actual
cost of 4.8% on the Bt90bn debenture and estimated cost of 5.8% on the Bt90bn debt
that is now being refinanced. Our sensitivity analysis suggests that each 10 bps fall in
cost of funds below our assumption increases its earnings by 1%.
- Expect 1Q14 profit of Bt3bn, -5% YoY but +42% QoQ. The YoY slip reflects interest
expenses and fees related to the acquisition of MAKRO of ~Bt2bn, outpacing CPALL’s
moderate sales growth. Sales growth is underwritten by YoY expansion of 2% in store
numbers and 1% SSS growth (unusual cold weather hit its beverage sales, 30% of sales,
in early 1Q14). This Bt3bn profit also includes Bt1.2bn from MAKRO (fully consolidated
since 3Q13). The rise QoQ is seasonal, bulked up by lower fees from the acquisition of
MAKRO and the absence of FX loss.
- Maintain BUY with DCF PT at Bt52. ST catalysts are: 1) potentially better-thanexpected
cost of funds on lower interest on the Bt90bn refinancing; 2) stronger SSS
growth from unusually hot weather in 2Q14. We maintain our projected 23% earnings
growth in 2014. More improvement will be seen in 2H14 coming off last year’s low base
(which contained expenses related to the acquisition of MAKRO) plus the synergy with
MAKRO that is widening margin.