Big C Supercenter

Big C Supercenter Plc (BIGC)
 

What's new? BIGC's board resolved to indefinitely postpone the plan to issue new shares worth Bt25bn (220-350m shares) through a rights offering, but approved the allocation of up to 23.6m authorized but unissued shares (equal to 2.9% of paid up capital) to specific investor(s) and/or institutional investors under a private placement. The price of the new shares will be set by book building.
Cut payout ratio: Due to the postponement of the Bt25bn cash call, the dividend payout ratio for FY11 was cut to its floor level of 30% in order to reserve cash for financing expansion. As such, the dividend for FY11 will be Bt1.96/share; XD on April 10.
Aggressive expansion plan may be pushed back: The proceeds of the new share issue of Bt3.3-4.0bn (based on a price of Bt140-170/share) won’t be sufficient to finance the entire expansion plan. BIGC will maintain its roll out plan for Mini Big Cs unchanged, but the firm’s earlier stated ambition of having a total of 300 Big C hypermarkets and Big C Markets by YE15 will probably be downsized. We regard the postponement of the Bt25bn cash call as negative because the expansion rate may not match Tesco's plan. As such, BIGC will lose some market share to its main rival, which could weaken its bargaining power with vendors compared with Tesco.
Hopefully launching a property fund: Management wants to go with an REIT rather than a property fund, as BIGC wants to hold a stake exceeding the 33% permitted for property funds. However, the regulations for REITs haven’t been finalized yet, so we hope the firm will consider spinning off some assets to a property fund—as Tesco did—in order to speed up expansion and maintain market share.
Action: Given that there isn’t any upside to our YE12 target price and that BIGC will probably delay or downsize its aggressive expansion plan for its most competitive format, we have downgraded our rating to HOLD from BUY.