Siam Makro

MAKRO reported 4Q15 net profit of Bt1.42bn, down 6% YoY. The figure was 6% below our model due to slimmer-than-expected gross margin.

Results highlights

Sales rose 6% YoY to Bt39.8bn, while SSS fell 3.7% in 4Q15 (-0.6% for FY15) due to poor dry food and non-food sales, as well as the cannibalization effect. Gross margin declined a slight 7bps YoY to Bt9.5%, but this was lower than our estimate of 10%.

SG&A expenses rose 10.6% YoY to Bt2.8bn and the SG&A/sales ratio expanded to 7% in 4Q15 from 6.7% in 4Q14, due mainly to higher depreciation and pre-operating expenses for new stores.

MAKRO says it will pay a final dividend of Bt0.45/share, XD on 8 Mar.

Outlook

Despite some recovery expected, SSSG should remain soft in 1Q16. 

What’s changed? 

We maintain our earnings forecast and target price unchanged at the moment, but we may revisit our model after an analyst meeting on 24 Feb.

Recommendation

Despite the recent fall in share price, we don’t think the current valuation is attractive. The stock currently trades at a high PER of 25.7x FY16, but its earnings growth is expected to be only 14.7% this year. We thus maintain our HOLD rating on MAKRO. In our view, good timing to start reloading the stock would be late in 2Q16 at which time earnings growth is expected to accelerate on the back of improving performance of new stores.