Big C Supercenter

Big C Supercenter Plc (BIGC)

- 1Q14 profit disappointing. Low profitability
1Q14 net profit was reported at B1.26bn, falling 52% qoq and 10% yoy
(26% below consensus); the first drop yoy in four quarters. There was no
surprising positive factor in 1Q14. While profitability was high in 3Q13-4Q13
possibly thanks to subsidies from suppliers and good operating profit,
profitability dropped significantly in 1Q14: 1) 1Q14 gross margin dropped
70bps (yoy) and 500bps (qoq) to 13.3%. During the economic crunch,
customers bought only necessary goods and it was hard to sell high-margin
goods. 2) SG&A/Sales increased by 80bps (yoy) and 100bps (qoq) to
18.3%; new branches were opened, thus raising expenses on depreciation,
personnel and utility (60-70% of SG&A). Sales volume was also affected by
the political turmoil. Same store sales fell for the second consecutive
quarter by 2.1%yoy. However, thanks to the openings of new branches,
total sales volume grew by 2.7%yoy and rental income rose by 7.8%yoy
thanks to increasing rental space. Moreover, other income (subsidies from
suppliers and revenue sharing from VGI) grew by 11.5%yoy.
- Not to rebound much throughout 2014
As a result of the economic crunch and weak purchasing power from BIGC's
main customer base (lower- and middle-class customers), profit is expected
to decline for the third consecutive month in 2Q14. FY2014 gross profit
margin is likely to drop yoy, in line with the company's expectation. 2H14
profit is likely to rebound from 1H14 thanks to high season. However, as
2H13 profit base was strong, 2H14 profit is not likely to grow significantly
yoy. We maintain our earnings forecast, projecting FY2014 net profit to stay
flat yoy (8% below consensus).
- Unattractive. Sell
FY2014 expected P/E ratio of 22x is higher than the seven-year average of
20x. Also, BIGC is not attractive due to its negative factors. We reiterate to
sell.