Big C Supercenter

Unattractive SELL

Big C Supercenter Plc (BIGC)

- 3Q14 profit improves from rental income. Sales income remains weak

3Q14 net profit was reported at B1.57bn (3.5% under consensus), dropping

17%qoq but growing 14%yoy owing to the following contributions: 1) Gross

margin rose for the second quarter by 100bp yoy to 14.2%. Supply chain

management improved thanks to the new cross dock. 2) Rental income

grew by 8.6%yoy thanks to an increase in leasable space from new

branches. Therefore, 3Q14 normalized margin rose by 60bp to 5.3%

although SG&A/Sales increased by 80bp yoy. Sales income grew by only

2.7%yoy as same store sales rose by just 2.2%yoy due to political tension.

- 4Q14 profit to fall year-on-year

We maintain our FY2014 earnings forecast. 9M14 profit made up 68% of

FY2014 earnings forecast. BIGC's profit is projected to make the year's peak

in 4Q14 thanks to high season, but expected to drop yoy as a result of high

profit base and profit margin in 4Q13. 4Q14 profit margin is projected to

drop. Although a new cross dock has been opened, subsidies from suppliers

and trading discounts have increased slightly as sales have not met the

target. BIGC's earnings are projected to drop from 2013, and then revive by

13% in 2015 as household spending recovers, while the sector's average

profit growth is estimated at 20% (under the assumption that VAT is kept at

7%; earnings forecasts might be revised if VAT is raised).

- Expect no steady growth

FY2015 fair value (23x P/E ratio + seven-year 0.5SD) is B218, lower than

the current price. BIGC is currently traded at FY2015 P/E ratio of 26x, less

expensive than the sector's average of 28x. However, BIGC's profit swings

unpredictably every quarter, and the business has entered saturation, so it

is not likely to rebound sustainably. We reiterate SELL