CP All

CP All Plc (CPALL)
Although competition in the CVS market will intensify with the entry of newcomers, we aren’t concerned about CPALL’s growth or profitability outlook. We believe its plans to strengthen its operational backbone will both keep it a country mile ahead of the competition for years into the future and boost its growth profile further. Only a few other retailers in Thailand have operational efficiency comparable to CPALL’s. As such, we believe the firm deserves to trade at a premium to its peers. With an FY13 PER of 25.5x versus a sector average of 26.2x, the stock remains our top BUY in Thai Consumer space.
10,000 stores by YE18
As expected, management, at the analyst meeting last Friday, announced that CPALL will accelerate the store rollout to 550 outlets a year (from 500 a year) in order to achieve its new target of having 10,000 locations by YE18. The room to grow remains substantial, both in terms of store numbers and sales per store. Management said that the density of convenience stores per capita in Thailand is only 1:5,700, compared to 1:2,800 in Japan and 1:2,400 in Taiwan, while sales per store at 7-Elevens in Japan are four-times higher than in Thailand. Even adjusting for purchasing power parity, sales per store at 7-Eleven Japan would still be double that of CPALL.
Ready for competition
The very large room to expand, on the other hand, has attracted some well-heeled new players into the segment, such as Tesco, BIGC, Family Mart and Lawson. But we still expect CPALL to hold its market share or even increase it. The new plan to roll out 550 stores per year should maintain its market share in terms of store numbers for the next couple of years, while sales per outlet are expected to continue outperforming peers thanks to an unparalleled merchandise mix. CPALL plans to increase its distance from competitors by improving its merchandise mix, adding new services and enhancing logistics efficiency. More DCs and food factories will be built across the nation in order to increase delivery frequency, offer more short-shelf-life and high-margin food products and ensure product quality.
Upbeat about the prospects for 4Q12
Besides the Stamp campaign (runs July 25-Nov 25), which boosted 3Q12 SSSG to a record of 16%, there are another three factors to push 4Q12 SSSG even higher. The first is the Vegetarian Festival in mid October, which facilitated a jump in sales of high-margin veggie food products during the period. Second is the low base set by the 4Q11 flooding. The last factor is a new campaign (yet to be detailed or announced) to be launched in December. We expect a new record SSSG of 21% and a 98% YoY leap in the bottom-line for the quarter.