Siam Makro

Siam Makro (MAKRO) Plc

Q2 2012 profit impressively rises 34% YoY despite impact from increased wage
Although there are negative factors for MAKRO: the second quarter which is
normally a low season for MAKRO and the impact from increased minimum
wage policy for the first quarter, 2Q12 net profit is still impressive at B769m
or a decrease of 11% QoQ but a rise of 34% YoY. If the compensation from
flood insurance (recognized for the first quarter at B20m which is slightly
lower than expected) is excluded, the norm profit still grows by 31% YoY due
to 18% YoY growth of total sales as a result of same-store sales that still
have grown by approx 9% and openings of 6 new branches since 3Q11-
2Q12. For the gross margin, it has increased notably from 7.1% in 2Q12 to
8%. Due to hot climate and European Football Championship, the beverages
especially alcohol and electronic appliances with high margin have been sold
tremendously. In terms of expense control, it has been so effective for all
along that the impact from increased wage deceases, urging SG&A/sales to
increase slightly from 6.2% in 2Q11 to 6.5%. In addition, there’s a benefit
from the corporation tax that is reduced to 23%.

2H12 profit tends to exceed one in 1H12 along with overall economic look
Net profit in 1H12 is 43% from FY2012 forecast which is slightly lower than
expected because of the compensation from flood insurance in 1H12 that was
recognized at only B20m instead of ASP projection at B200m, lower than the
real damage worth of B238m (business interruption excluded). The details
concerning the rest of the compensation is projected to be made clear in the
analyst meeting on 23 August 2012, as well as the plan of new branch
expansion during the rest of the year. However, 1H12 norm profit is
considered 45% from FY2012 profit which is close to normal state since the
profit is likely to increase in 2H12 along with the overall business look that
will recover gradually in 3Q12 and 4Q12. Moreover, 3Q12 will not be a low
season for MAKRO (unlike peers) due to the financial support and discount
from suppliers from arranging anniversary promotion in every 3 quarters,
boosting gross margin higher than one on 2Q12. In addition, HoReca
products are projected to have a better growth to over 20% YoY as normal,
recovering from 1Q12 that grew only by 16.9% YoY because of flood impacts.
For 4Q12, it will be a high season as normal, so 2012 norm profit is projected
at B3,552 or an increase of 27% YoY.

Recommend “BUY” and receive 1H12 dividend at B3.5/share, going XD on 21 August 2012
We maintain our positive prospect toward MAKRO and its potentiality in
administration, reflecting from the growth of same-store sales that has
stayed high for all along. Moreover, the dividend yield is the highest among
peers and the earlier fall of price is considered a good chance to invest. We
recommend “BUY” (FV@B414) and receive 1H12 dividend at B3.5/share,
going XD on 21 August 2012.