CP All

CP All Plc (CPALL)

14% below estimate: CPALL reported a 2Q12 net profit of Bt2.6bn, up 20% YoY but down 6% QoQ. The figure was 5% lower than the consensus and 14% below our estimate, due to higher-than-expected OPEX.
Results highlights: 2Q12 SSSG (excluding phone cards) was 10.5%, above our estimate of 8.5%. Favorable weather, new RTE product launches and EURO 2012 soccer boosted F&B sales by 11% YoY, while non-food sales grew 10% YoY, led by strong demand for personal care products.
The number of tickets rose 3% YoY to 1,295 tickets/per store/day and the basket size increased 6% YoY to Bt56/basket, thanks to special redemption and combo promotion campaigns.
During 2Q12, CPALL opened 181 outlets, bringing the number of new shops in 1H12 to 384, equal to 76.8% of the firm’s FY12 target of 500. We expect management to offer upgraded guidance on store rollout plans at the analyst meeting on August 10.
Average product GM expanded by 40 bps YoY to 25.6%, driven by both food (up 40 bps YoY) and non-food (up 50 bps YoY).
OPEX jumped 26% YoY to Bt10.6bn and the OPEX/sales ratio rose to 23.4%, from 21.6% in 2Q11, led by higher wage costs (up 26% YoY), electricity bills (up 27% YoY, due to a higher FT rate and hot weather) and ADEX (up 46% YoY with new TV ads).
Outlook: The OPEX/sales ratio will rise further in 3Q12, due to the Aug-Nov stamp collection campaign. However, we expect the extra sales facilitated by the campaign to more than offset the effect of higher expenses. As such, although profit will soften QoQ in 3Q12 on seasonality, YoY growth should remain strong and accelerate in 4Q12, thanks to the low base effect.
What’s changed? We have cut our FY12 forecast by 5% and trimmed our YE12 target price to Bt39.5 from Bt40.
Recommendation: We view the sharp rise in wage costs as one-time event, while strong sales growth and GM expansion should be sustained for the next several years, underpinning CPALL’s superior SET-beating long run growth profile. Our BUY rating stands.