Big C Supercentre

Big C Supercentre Plc (BIGC)  

Although SSSG improved in 3Q, earnings were 23% below consensus expectations due to higher SG&A expenses. BIG C’s long-term outlook is still uncertain given increasing sector competition, upcountry expansion execution risk and slow sales growth relative to the sector. 9M12 net profit was 66% of our full-year forecast and 23% below consensus. We cut our FY12-14 EPS estimates for the lower gross margins and higher SG&A expenses. But our target price is a tad higher as we roll forward our valuation, now set at 18.8x CY14 P/E (prev. 19.8x CY13 P/E), still at 8.4%WACC, 2%LTG. We maintain our Underperform call. 

Seasonally soft 3Q
Top line growth formed 75% of our full-year forecast. 3Q revenue was THB30.1bn (-1.5%qoq, +8%yoy) while SSSG accelerated to 3.7%, given increased sales promotions, while margins remained stable as expected due to the rainy season. However, SG&A costs increased significantly,
up 7% qoq and 6% yoy due to increased insurance premiums (due to large insurance claims from
flooding and political unrest) and utilities costs. 3Q earnings of THB1bn, (-25%qoq, +27%yoy) was 23% below consensus and our expectations, mainly due to increased SG&A expenses in 3Q.
 

Competition and execution risks remain

Store openings in 9M12 have largely been in line with management guidance and our estimates. We believe that execution is the key risk as expansion in 2012 does not yet pair up with management’s aggressive 2016 targets, while competition continues to increase. Therefore Big C
is at risk of losing market share during Thailand’s retail boom, in our view.

Trailing retail peers
Although Big C is currently the cheapest retail stock under our coverage, it has increased 65% ytd.
We expect the stock to underperform going forward given 1) slow SSSG relative to the sector, 2) relatively difficult upcountry expansion, and 3) heavy competition from Tesco Lotus and CPALL for its hypermarket and convenience store businesses.