CPALL

CPALL Plc

Target MAKRO to lift margin by 20bps and open 7-11 branches a year

CPALL revealed at the analyst meeting yesterday that its acquisition of MAKRO
will be totally complete after getting an approval from the shareholders’
meeting on 12 June 2013. Preliminary targets after the acquisition are 1) the
synergies will boost MAKRO’s margin at least by 20bps in 2014; combined
with another 20bps increase in margin from organic growth of MAKRO itself,
total margin of MAKRO will grow at least 40bps by 2014, and 2) to open 7-11
new MAKRO stores per year (including overseas branches) since 2014 – 2019,
which is a double of MAKRO’s average store openings of 4-5 stores a year.
- Clearer acquisition plan to boost profit growth to 29% yoy since next year
With the above-mentioned targets, MAKRO’s profit since 2014 would grow
remarkably not less than 30%yoy and be able to offset CPALL’s interest
expense on loan raised for the acquisition. Accordingly, CPALL will begin to
recognize benefits from the acquisition since next year; the profit would grow
29%yoy, while the target for the 20bps margin growth from the business
synergies is in line with our assumption. We estimate a 40bps increase in
margin from MAKRO’s organic growth, which is higher than CPALL’s target but
close to MAKRO’s average margin growth in the past 2 years at 50bps as
driven by HoReCa products. Nevertheless, the margin growth overestimation
would be offset by MAKRO’s sales that would be higher than our assumption.
While CPALL’s growth target is 15-20% a year, our target is only 10%yoy.
This is because CPALL would help support MAKRO in opening new stores more
and earlier than our projection (we foresaw only 3 new store openings in
2014). The branch expansion also includes overseas market, especially
Vietnam in which MAKRO has been interested as it is a large market that has
great population and is engaged mainly by traditional trade stores, which are
major targets for the wholesale business of MAKRO. Furthermore, CP’s
vigorous business base in Vietnam will help facilitate the store openings.
Preliminarily, CPALL revealed that MAKRO would be able to open 2 new stores
in 2014. Further details will be reported after the next
analyst meeting on 16
May.
- Very promising in long run. Buy
We hold a positive outlook toward magnificent long-term growth of CPALL.
The current share price is still laggard and has the lowest PER among peers.
BUY (FV@B60).