BigC Supercenter

BigC Supercenter Plc (BigC)

Investment thesis
We have upgraded our FY14 earnings forecast by 2% and raised our YE14
target price to Bt224 from Bt212 to reflect strong 2Q14 results and an
improving margin outlook. But the 6% share price rally (beating the SET by
5%) since earnings were announced has pushed up the PER to 26x FY14
and 23x FY15, which looks fully valued. The scope for a further profit
forecast upgrade appears limited, as we already assume benefits from
supply chain developments. Our model suggests EBITDA margin of
11.4%, higher than the firm’s target of 11.1%. Moreover, we don’t think it is
a good idea to take positions on BIGC after the recent rally and ahead of
soft season in 3Q14. Our HOLD rating stands.
SSS turning around to growth in 2H14
Management said that the SSS contraction of 1.2% in 2Q14 was mainly
due to the post-coup curfew in late May to early June. If there were no
curfew, SSS for the quarter would rise, given that SSS still grew in April to
early May. As such, with improving consumer confidence and the NCPO’s
policy to stimulate domestic consumption, we expect BIGC’s SSS to turn
around to growth in 3Q14 and accelerate further in 4Q14 from the low base
set by 2H13. Stores in Bangkok should continue to outperform upcountry
outlets, thanks to good performances by BigC Extra, which caters to mid to
upper mid-income demographics.
Profitability on the way up
Margin expansion following supply chain developments should buoy
earnings growth in 2H14 and FY15. The full impact of Mini BigC’s DC
(opened in late May) should be evident in the numbers for July, by which
time it would have been serving all Mini BigC stores. The cross-docking DC
(to open in August) should improve margin further as it enhances logistics
efficiency and allows more supplier to ship products via DC. The fresh food
DC (which will replace two small DCs in 1Q15) should build economies-ofscale
and expand DC centralization fee revenue from suppliers. BIGC
targets to turning its DC units from cost centers to cost-neutral, but has yet
to offer guidance how much margin will improve and when the target will be
achieved.
Upside to expansion, but only a minimal impact on earnings
The firm is likely to roll out more stores than its target this year. It targets
opening four hypermarkets, eight BigC Markets and 40 Mini BigCs in FY14,
but had already rolled out four hypermarkets, two BigC markets and 37
Mini BigCs in 1H14. However, we think branch expansion this year will
prove only modestly above-target. We don’t expect more hypermarkets to
open in 2H14, due to the long construction period involved. If any were to
open any more hypermarkets this year, the store size would probably be
small—comparable to the outlets opened in 2Q14 (~4,000sq.m). We
expect the firm to beat its target only for its Mini BigC rollout, but Mini
BigC’s contribution remains small.