CP ALL

CP ALL Plc

Q2 2012's profit to increase 23%yoy but decrease 3% qoqdue to wage raise

The hot weather in April and May and UEFA EURO 2012 would
help boost sales in June, compensating a problem from the rainy
season, so same-store-sales are projected tog grow impressively
by 7%. Combined with increasing sales from 565 new stores
opened in 3Q11-2Q12, total sales would grow by 17%yoy. Gross
margin would stay high close to that of 1Q12 at around 25.7%,
up from 24.8% in 2Q11. However, it would be pulled down by a
minimum wage raise for the first time in this quarter which
would make employee expense increase from the previous
quarter by B400m and SG&A/sales increase from 21.6% in 2Q11
to 21.9%. Nevertheless, with benefit from a corporate income
tax cut to 23% that will help compensate the increased
employee expense from the wage raise, net profit in 2Q12 would
stand at B2,669m, rising 23%yoy but dropping 3%qoq.

Launch biggest promotion "7-11 Stamp" in 3Q instead of 4Q of every year

As many suppliers have resumed their normal operation after
the flood, CPALL has pushed forward its biggest promotion
campaign "7-11 stamp" since late July to November (4 months)
instead of November to February like previous years. The
campaign is believed to boost same-store-sales growth in 3Q12
substantially by 8-9%yoy, higher than an assumption for
FY2012's 7%. Promotion income would increase in the quarters
of the promotion, which are 3Q12 and 4Q12, while recognition
of the highest selling expense which usually occurs in the 4th
quarter will be made in 3Q12 instead. However, SG&A would still
be highest in 4Q12. Consequently, overall we project to see
remarkable profit growth in both 3Q12 and 4Q12 compared with
the same period last year (3Q12 from the stamp promotion and
4Q12 from a low profit base in 3Q11), but only a flat growth
qoq. Accordingly, net profit in FY2012 is estimated at B10,748m,
growing 34%yoy.

Upside is limited. In short term recommend HOLD. Fair value is B36

The share price has declined until having 8% upside from the
fair value (at B36) and we will use 2013’s fair value at B42.6
after 3Q12. However, with the limited upside, in the short term
we still recommend “HOLD” to wait for higher fair value in the
following year.