Big C Supercenter

5% above estimate

BIGC reported a 3Q14 net profit of Bt1.57bn, up 14% YoY but seasonally down 17% QoQ. The result beat our estimate by 5%, due to fatter margins than modeled.

Results highlights

Sales rose 3% YoY to Bt29.7bn, driven purely by new store openings. Same-store sales rose during the first two months of the quarter, but weak sales in September squeezed SSS to a decline of 1.5% for 3Q14 as a whole. Rental income increased 8.6% YoY to Bt2.4bn, led by an expanded rental area and a higher rental rate.

Gross margin was 14.25% in 3Q14, fatter than our estimate of 14.07%. The 106 bps increase was led by efficiency enhancements along the supply chain. The 97 bps QoQ drop in GM was due to seasonally low supplier rebates during the third-quarter. This impressive gross margin pushed up EBITDA margin to 10.9% for 3Q14 and 10.7% for 9M14, from 9.8% in 3Q13 and 10.2% in 9M13.

Outlook

4Q14 should be much stronger—the best quarter of the year—driven by huge supplier rebates.

What’s changed?

We maintain our FY14 earnings forecast and YE15 target price unchanged for now, but may revisit our model after the analyst meeting on Friday if any interesting new information comes to light.

Recommendation

Given only 7% upside to our YE15 target price of Bt250, we maintain our HOLD rating at the moment. There could be scope for upside if margin expansion (enabled by supply chain development) were to exceed our assumption. On the other hand, another dip in consumption spending would squeeze sales and the bottom-line.