CP All

CP All Plc (CPALL)

CPALL reported a 3Q12 net profit of Bt2.9bn, up by 34% YoY and 11% QoQ. The result was 13% above our estimate and 10% higher than the street because the impact of the Stamp campaign was much more significant than expected.

Results highlights
Same-store sales (ex-T&E) jumped 16%, led by the Stamp campaign, which boosted the basket size to Bt60 from Bt53 in 3Q11 and Bt56 in 2Q12. CPALL opened 113 new outlets in 3Q12, taking the total to 6,773 stores at end-Sept. Traffic to the stores increased by 3% YoY to 1,263 customers/store/day (no indications of cannibalization).
Gross product margin expanded by 20 bps YoY to 25.5%, driven by both food (up 10 bps YoY) and non-food (up 70 bps YoY). On a QoQ basis, product margin dipped 10 bps following a 20 bps decline in food margin, as sales promotions during the Stamp campaign concentrated on the snack and beverage categories, which carry slightly lower margins than RTE products. Non-food margin jumped 50 bps QoQ, thanks to robust sales of cosmetics for men.
The SG&A/sales ratio rose to 23.9% in 3Q12 from 22.3% in 3Q11, due to higher wage costs and promotional expenses related to the Stamp campaign. However, extra stamps for particular products were subsidized by suppliers, booked in other income. As such, EBIT margin expanded by 13 bps YoY and 15 bps QoQ to 7.11%.

Outlook
The strong increase in other income (up by 59% YoY and 31% QoQ) implies that there was a lot of enthusiasm among suppliers to participate in the campaign by offering extra stamps to customers—the promotion proved effective at boosting sales and market shares. Supplier participation is likely to rise even further in 4Q12, so very strong sales growth is expected. Note that we assume 4Q12 SSSG at 21%.
Moreover, there should be some reversals of expenses, as not all the stamps will be redeemed for cash or premium collection. Coupled with the low base effect, we expect CPALL to post spectacular profit growth of 98% YoY for 4Q12.

What’s changed?
We have upgraded our FY12-14 earnings forecasts by 6%, 7% and 6%, respectively. As such, our YE13 target price rises to Bt48.25 from Bt45.

Recommendation
CPALL remains on our top BUY list in Thai Retail space. Although the share price has rallied 11% since our call in early October, its valuation remains attractive—an FY13 PER of 25.5x versus a peer average of 26.6x.