CP All

CP All Plc (CPALL)

Investment thesis: Our field trip to CPALL’s new distribution center in Khonkaen, last week reaffirmed our confidence in its operational strength and the scope for demand growth in the region. We believe the stock is one of the best on the SET and should be heavily loaded into portfolios for its sustainable growth profile (3-year EPS CAGR of 22%) and healthy balance sheet.
New DC in the region: The one year-old regional DC in Khonkaen comprises 12,000sq.m of dry grocery DC and 780sq.m of chilled DC, equal to around half the size of CPALL’s main DCs at Bang Bua Thong and Suvarnabhumi. The RDC currently services all 728 stores in the Northeast plus Petchaboon Province in the Central region. Its maximum capacity is 1,500 outlets, a level expected to be reached within the next five years. That means around one-fourth of the new stores to open each year will be in the Northeast. In order to cope with fast-growing demand in the region, CPALL plans to build another RDC in the lower Northeast, probably in either Buriram or Surin province. Note that next RDC to open this year will be in Lampoon Province and will service stores in the Northern and upper central region.
Convenience food store concept continues: More regional DCs will support CPALL’s aggressive expansion program and help the company meet its goal of transforming into a convenience food store and default vendor of ready-to-eat (RTE) and ready-to-drink (RTD) products in the consumer mindset. By shortening delivery times and increasing delivery frequency, it will be able to add a wider variety of short shelf-life food products and dynamically amend product assortments in order to better cater to customer demand during each period of the day.
A new efficiency breakthrough in Khonkaen: We have learnt that the Khonkaen RDC is the most efficient of CPALL’s DCs—the DC team there has reengineered the processes of loading truck queues and shipment preparation from a series method to a parallel method. Idle time has effectively been eliminated and the use of handling equipment reduced by 70%. Consequently, the RDC will save Bt70m in CAPEX over the next five years (and some OPEX, but it’s not clear how much). CPALL will apply these logistics enhancements to other DCs in the future, substantially boosting overall efficiency.