Siam Makro

Siam Makro Plc (MAKRO)

Beat our estimate: MAKRO reported a 2Q12 net profit of Bt769m, up by 34% YoY but seasonally down 11% QoQ. The number was 3% above the Bloomberg consensus and 6% higher than our model, due to fatter-than-expected gross margin.
Results highlights: Sales and gross margin have both sustained impressive growth momentum. Sales rose by 18% YoY to Bt27bn, led by 9.1% SSSG. Higher food prices, strong beverage sales and the addition of a variety of new HoReCa items were the major drivers of the strong sales growth
Gross margin expanded by a substantial 84 bps YoY and 24 bps QoQ to 7.95% (our assumption was 7.35%), thanks a greater concentration of HoReCa items in the sales mix.
In our view, this sustained strong SSSG and margin momentum is attributable to MAKRO’s strategic focus on the needs of HoReCa customers, which is effectively a Blue Ocean market—the firm has no real competition.
SG&A expenses were also very well controlled, even though wage costs rose. The SG&A/sales ratio increased only 31bps YoY to 6.49%, slightly below our estimate.
MAKRO announced an interim dividend of Bt3.5/share for 1H12. XD on August 21.
Outlook: Not only do we expect sales and margin to expand further in 2H12, but we anticipate that momentum will be sustained for at least several more years, driven by HoReCa sales. Moreover, there would be upside to our projection (and the consensus forecast) if MAKRO were to launch an aggressive store rollout. We suspect that the significant increase in staff numbers at the head office is in preparation for a big expansion.
What’s changed? We maintain our FY12 forecast unchanged for the moment, but may revisit it after meeting with management on August 23.
Recommendation: MAKRO now trades at the cheapest PER and offers the highest dividend yield in Thai Consumer space. We maintain our conviction BUY with a YE12 target price of Bt424.