Big C Supercenter (BIGC)

Big C Supercenter Plc (BIGC)

Q2 2012 earnings surprise runs out. Profit returns to grow 27% YoY as normal
The benefits from merging with Carrefour (Synergy) have decelerated,
bringing about no earnings surprise for Q2 2012 profit as happened before in the
past 3 quarters. The profit in Q2 2012 stands at B1.388bn or a decrease of 23%
QoQ due to seasonal effects, but an increase of 27% YoY due to sales that
have increased by only 5% YoY (same-store sales have grown by 1.6%) as a
result from the government’s minimum wage policy and high cost of living
that had affected the customers’ spending during April and May. The gross
margin has declined to 13.5% from 14.4% in Q2 2011 according to the
recognition of synergy back in Q1 2011 and effects from competition which is
getting more intense, especially discount coupon promotions that have
pressured the gross margin. However, the company has been compensated
by the income from space rental that has increased by 12% YoY and the
recognition of B153m from flood insurance. Combined with good
management of selling and administrative expenses, SG&A/sales has
declined to 16.2% from 16.7% in Q2 2011. Moreover, there is a benefit from the
tax that is decreased to 23%.
 

Competition still aggressive in 2nd half 2012 while new branch opening
plan next year still unclear
Although 1st half 2012 net profit is considered 54% of FY2012 forecast, we maintain
our forecast with 2012 profit at B5,913m or an increase of 13% YoY because
the deceleration of benefits from merging (Synergy) and the decreased
money from insurance compensation will make the profit from now on come
mainly from normal operation which is facing fierce and continuous
competition in 2nd half 2012. Q3 2012 profit is projected to weaken due to low-season
effects before gradually growing back again in Q4 2012. 2013 profit is projected
to grow continuously by 14% YoY under a conservative assumption that the
new branches will be opened close to the number in 2012 which are 5
branches of Hypermarket, 10 branches of Big C Market and 150 branches of
Mini Big C. However, this is still lower than the company’s long-term target in
2016 for 300 branches of Hypermarkets and Big C Market, and 950 branches
of Mini Big C from the current numbers of Hypermarket and Mini Big C at 124
branches, and Mini Big C at 76 branches. Accordingly, BIGC has to open 8
branches of Hypermarket, 34 branches of Big C Market and 206 branches of
Mini Big C on average since 2013 to 2016. In case all branches are opened as
targeted, the investment cost is projected to stand at B10-11bn/year while
BIGC still has to repay loan debt after a recent refinance at around B32bn
with only B10-12bn cash in hand, so there is still a risk of capital increase in
2-3 years ahead.

Price on sky-high expectation. Recommend “SELL” while price still high
The share price has already increased to reflect every positive factor while
there is a low chance for earnings surprise from now on. BIGC hasn’t yet
revealed the plan of new branch expansion in the following year, so this is a
negative factor that will pressure the share price in a short term. While the
fair value stands at B177 which is still lower than the current market price,
we recommend “SELL”.