Big C Supercenter

Big C Supercenter Plc (BIGC) 

Net profit 7% below estimate

BIGC reported a 4Q14 net profit of Bt2.5bn, down 4% YoY but up 60% QoQ. The figure was 7% below our estimate due to the lower-than-expected gross margin and other income.

Results highlights

Sales rose 3% YoY to Bt31.8bn in 4Q14, while SSS returned to a rise of 0.5% thanks to the low-base effect. Rental income increased 5% YoY to Bt2.35bn, led by a 3% YoY increase in rental area and a higher rental rate.

Gross margin was 16.9% in 4Q14, slimmer than 18.3% in 4Q13. Management said the fat GM in 4Q13 was due to some extra rebates from suppliers, while 4Q14 GM should attain a normal level for the fourth quarter.

SG&A expenses were well controlled (flat YoY), while the SG&A-to-sales ratio dropped 39bps to 16.9% thanks to a cost-optimization program.

Outlook

Profit in 1Q15 should be weaker QoQ on seasonality, but we expect a good profit growth of around 20% YoY pushed by the low base set as a result of political turmoil in 1Q14.

What’s changed?

We maintain our earnings forecast and target price unchanged.

Recommendation

We expect BIGC’s earnings growth to outperform the peer average in 1Q15-3Q15, thanks to improving profitability from supply-chain development. BIGC’s current valuation is also attractive. Its PER of 22.5x FY15 is the cheapest in the retail sector. With 18% upside potential to our YE15 target price of Bt270, we maintain our BUY rating on BIGC.