CP All

CP All Plc (CPALL)

Investment thesis: CPALL’s 11% decline in share price and 4% underperformance to the SET since ex-stock dividend on May 3 has brought its share price down to an attractive re-entry level and returned it to our top BUY list in Thai Consumer space. We believe that the series of unfavorable factors (bad weather, flooding and supply chain disruptions) has ended. CPALL is now ready to return to stage with very strong 2Q12 earnings as a curtain-raIser. We reiterate our BUY call with a YE12 target price of Bt40.
Impressive performance ahead: The hotter and drier weather in 2Q12 should substantial boost beverage sales and push CPALL’s SSSG to above its normal range of 6-7%. EURO 2012 soccer should also add to sales, as football fans tend to stay up late into the night and want to eat and drink. 7-Eleven is one of the few venues still open at those hours. Given that food and beverages carry above-average margins, a strong margin expansion is expected for the quarter. As such, despite higher payroll costs since April, we anticipate a record profit of Bt2.98bn for 2Q12, up 37% YoY.
Sustainable strong long-term growth: CPALL's mid- to long-term growth story remains exciting, as there is considerable scope for existing store performances to improve. The strategies that could sustain outstanding earnings growth over the long-term include: 1) more ready-to-eat (RTE) food varieties, 2) competitive pricing compared to street food, 3) the rollout of chilled meal boxes to more outlets and 4) the addition of Kudsan and eXta corners to 7-Eleven outlets.
Upside from store rollout: We believe CPALL has the lowest execution risk associated with its expansion plan of the modern trade retailers we cover. Also, there is some scope for upside to the number of new stores to be opened going forward. Management guides that the firm will open 500 outlets annually, but its track record shows that it has gradually increased the number of locations rolled out each year, so long as supporting units have been up to handling the extra load. As such, after CPALL achieves its target of 7,000 outlets next year, we might hear of a more aggressive expansion plan, which would consequently prompt an earnings forecast upgrade.

Outlook
Impressive performance ahead: Following quarters of slow same-store-sales growth (SSSG), caused by unfavorable weather (in 1H11), flooding (4Q11) and post-flooding supply disruptions (1Q12), it is now time for CPALL to post a very strong performance. The hotter and drier weather, compared to last year, should boost its 2Q12 SSSG (excluding mobile top-up cards) above the normal range of 6-7%. Moreover, EURO 2012 soccer will add to sales, as football fans tend to stay up late into the night and want to eat and drink while they are at it. 7-Eleven is one of the few venues still open at those hours. We anticipate SSSG of 8.5% for 2Q12, which is higher than consensus estimate of 6-7%.