CPALL

CPALL Plc

1Q15 net profit Bt3.4bn, +27%YoY and +37% QoQ, 13% above our estimate and 21% above consensus. Behind the beat was: 1) lower-than-expected SG&A expenses (both from less impact from the MAKRO deal and better control on other expenses); 2) lower interest expenses from debt refinancing and lower interest rate; 3) better contribution from MAKRO (+21% YoY, above SCBS by 5% and market by 7%).  

 

1Q15 highlights: 

 

 By business segment. In 1Q15, of total consolidated sales, ~62% came from convenience stores and ~38% from the cash&carry business (97.88% in MAKRO since 3Q13). Of total earnings, 60% came from convenience stores and 40% from the cash&carry business. 

 

 SSS for convenience stores was +0.3% (vs. -1.1% in 1Q14 and -3.6% in 4Q14), off unusually length cool weather in 1Q14 and the stamp campaign flop in 4Q14. Spending per ticket was Bt63, +2% YoY but -3% QoQ. It averaged 1,243 customers in each of its stores each day, flat YoY and QoQ. 

 

 Added 207 convenience stores, raising total stores to 8,334 at end-4Q14 (+9% YoY and +3% QoQ). Of total stores, 55% are in the provinces and 45% in Bangkok and its suburbs.  

 

 Convenience store gross margin 25.7%, flat YoY but +30bps QoQ. Gross margin was 26% (-10bps YoY) for food products (72% of sales) and 25.2% (+50bps YoY) for non-food products (28% of sales).  

 

 Lower-than-expected SG&A/sales and interest expenses. SG&A/sales was 17.9%, -120bps YoY, from lower expenses from the MAKRO deal as these diminish over time, together with better control on other expenses. Interest expense was Bt2.3bn, -4% QoQ, thanks to debt refinancing (issuing low-cost debentures to refinance its LT loan) and benefit from lower interest rates. We estimate its effective interest rate at 4.9% in 1Q15 from 5.1% in 4Q14.  

 

Case on complaint of Senrigan Master Fund: not final. Senrigan Master Fund filed a claim for damages from CPALL arising out of the exchange rate calculation of the share price during the tender offer for MAKRO shares. The court of first instance (the South Bangkok Civil Court) ordered CPALL to pay Bt104.7mn in damages to Senrigan Master Fund. CPALL disagrees and is filing an appeal.  

 

Sector’s top BUY maintained. We raised 2015F by 4%, factoring in its lower interest and SG&A expenses. This leads to a raise in our end-2014 DCF PT to Bt54 (from Bt52). We like CPALL for: 1) SSS revival from better beverage sales during the hot season;  2) steadily diminishing SG&A related to the MAKRO deal (recorded in 3Q13-2Q14);  3) lower interest expenses as it increases its debt refinancing to take advantage of the fall in interest rates (Figure 3). CPALL will exhibit the sector’s best 2-year EPS growth at 30% p.a. More details will be provided after the meeting on 19 May.