CPALL

CPALL Plc (CPALL)

2Q13 profit stays flat yoy due to MAKRO acquisition cost
CPALL’s profit in 2Q13 stood at B2,649m, contracting 17%qoq and stabilizing
yoy. 2Q13 was the first quarter the company recognized an expense on MAKRO
acquisition, which will be booked gradually by installment for 3-4 quarters
(around B200-400m in this quarter), against our projection for one-time
recognition. At the same time, the company has started booking the interest
expense from the MAKRO acquisition (around 5-10 days) at B127m. A Fx loss of
B34m was also realized from the Baht appreciation during the quarter that had
an effect on Dollar debts the company made for the acquisition. Excluding these
items, profit from the core business still increased by 11%yoy, though lower
than the full-year target. Even though total income rose impressively by 12%yoy
as same-store-sales grew 7.6%yoy and 550 new stores have been opened in
3Q12-2Q13, it was offset by weaker profitability as a result of a higher increase
in the selling and administrative expense from hiking electricity cost. In terms of
financial status, 2Q13 was the first quarter CPALL consolidated its financial
statement with MAKRO’s (but not for the income statement) and booked the first
lot of loan for MAKRO acquisition (67.15% or around B140bn). Accordingly, net
gearing ratio increased to 4.8x, but it is a controllable level and tends to
decrease since 2014 onward.
- 2H13 profit would be dull. Cut 2013-2014 forecast 16% and 14%
The profit would hit a year’s low in 3Q13 because it is the first quarter CPALL
fully realizes the interest expense for MAKRO acquisition and entirely
consolidates its financial statement with MAKRO. As the financial cost tends to be
higher than the profit from MAKRO, norm profit of CPALL could weaken even
though it is a peak season with the biggest marketing campaign - stamp
promotion. The financial cost might also be higher than our previous assumption
of 3%. The interest rate at end-2Q13 stood at 3.3-4.5%. Combined with an
expense on financial advisor, the total financial cost would be 5%, close to that
disclosed by the company. Accordingly, we revise down our net profit forecast
for 2013-2014 by 16% and 14%, respectively. Under the new assumption, net
profit in 2013 would remain flat from last year, while the net profit growth in
2014 could be as remarkable as 33%yoy as a result of the low growth this year
and a benefit from MAKRO (to be recognized since next year).
- Share price already absorbs bad news. Improvement foreseen in the future
The share price has substantially reflected pressuring factor, while the company
would show greater improvement after acquiring MAKRO. Recently, CPALL is
going to ask shareholders for an approval on a plan to refinance its loan of
B170bn (B90bn would be made through bond issuance and the rest through
bank loan in Baht in order to reduce a Fx risk). The current share price still has
44% upside from the fair value that has been decreased from 60 to B53. Buy.