Big C Supercenter

Big C Supercenter Plc (BIGC)

Investment thesis: BIGC’s growth profile now looks attractive and close to the profiles of its peers, since we plugged part of its aggressive expansion plan into our model. Despite trading at a record high PER of 25.1x, it is still discounted to the Consumer average of 28.9x. We have, thus, upgraded our rating to BUY from HOLD and raised our YE12 target price to Bt232 from Bt156.
1Q12 recap: The firm surprised the street again with a very strong 1Q12 profit of Bt1.78bn, up 89% YoY. Our estimate was Bt1.34bn and the consensus was Bt1.2bn. SSSG was 3.4%, in line with our model, but we missed three items—other income, SG&A and tax expenses. Other income was Bt1.1bn, above our estimate of Bt873m, as BIGC booked insurance payouts for business interruption of Bt149m and inventory damage of Bt77m. SG&A expenses were lower than expected because there weren’t any fees tied to the acquisition of Carrefour Thailand, while the lower effective tax rate resulted from adjustments to certain items.
To expand aggressively: BIGC will open four hypermarkets, six Big C markets and 75 mini Big Cs with CAPEX of Bt5.5bn this year. Management also confirms targeting having 300 hypermarket and market format outlets and 950 mini Big Cs, but has shifted back the time-frame to 2016 from 2015. However, we think the scale of expansion will depend on financing after the firm uses up the Bt4bn proceeds from the PP over the next 18 months. As such, we assume that BIGC will achieve only half of its launch plan for new hyper-markets and Big C markets, but the goal of 950 mini Big Cs looks achievable by 2017.
Earnings forecast upgrades: To reflect stronger-than-expected 1Q12 numbers and the resumption of BIGC’s aggressive expansion program, we have revised up our earnings forecasts for FY12-15 by 10%, 11%, 16% and 19%, respectively. The upgrades make the firm’s growth profile more attractive and closer to the profiles of its peers, so a re-rating is likely.
New retail format: BIGC recently introduced Big C Optical, which sells glasses, lenses and contact lenses. The firm has also expanded its online business, as management believes this market niche has huge potential for growth.