Siam Makro
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Profit tops estimate on fat margin HOLD
Siam Makro Plc (MAKRO)
Net profit beats our modeling by 15%
MAKRO reported a 4Q14 net profit of Bt1.48bn, up by 13% YoY and 37% QoQ. The figure beat consensus by 7% and was 15% higher than our model, due to the company’s fatter-than-expected gross margin.
Results highlights
Sales grew 8.2% YoY to Bt37bn in 4Q14 and 10% to 139bn for FY14. SSSG was 0.1% in 4Q14 and 4.3% in FY14, in line with expectation. The slow sales growth was mainly attributed to declines in dry food (particularly liquor) and non-food products.
Given that sales of dry food, which has a slim margin, declined, while sales of fresh food, which has a fat margin, saw healthy growth, the gross margin thus expanded 79bps YoY to 9.61% in 4Q14, which made for 8.98% for FY14 (up 32bps).
SG&A expenses increased 12% YoY to Bt2.55bn, due mainly to higher depreciation and pre-operating expenses for new stores. Because SG&A expenses rose faster than sales, the SG&A/sales ratio expanded 24 bps to 6.81%. However, EBITDA margin still grew 57 bps YoY to 6%.
MAKRO announced a final dividend of Bt0.42 (XD on March 6), which takes the total dividend for FY14 to Bt0.87 (payout ratio of 85% and dividend yield of 2.4%).
Outlook
SSSG is expected to continue slow in 1H15 due to weak consumption and the high base in 1H14 (SSSG was 7.5% in 1Q14 and 6.3% in 2Q14). Higher depreciation expenses as the result of aggressive expansion should remain headwinds to the EBIT margin in the short term, but we expect margin to gain in 2H15 following the improving profitability of new stores.
What’s changed?
We maintain our earnings forecast and target price unchanged, but may revisit our model after an analyst meeting on February 26.
Recommendation
We maintain our HOLD rating on MAKRO due to slow growth profiles in the short term and its stretched valuation (PER of 32.1x FY15). We prefer CPALL on its stronger growth profiles and the potential upside it may gain from refinancing. The stronger-than-expected MAKRO earnings may lead to stronger-than-expected CPALL earnings, to be announced this evening.
