Siam Makro

SIAM MAKRO Plc (MAKRO)

-3Q13 profit strong, growing 35%yoy due to high profit margin
Despite decelerating purchasing power, MAKRO's 3Q13 profit was still the
strongest in retail sector at B1,024m, growing 7%qoq and 35%yoy, as sales
volume rose by 12.5%yoy. Same store sales were likely to grow by 7%yoy,
close to 1H13, while profit margin increased continuously due to MAKRO's
strategy to focus on capturing hotels, restaurants, and catering market
(HoReCa) which mostly buy food products, with 1-2% higher margin.
Moreover, MAKRO had good SG&A control, lowering SG&A/Sales by 10bps
from 3Q12 to 7.1%, despite increasing wage and utility costs. Thus,
normalized margin grew to 3.4%, making the year high.
- Profit to peak in 4Q13 and outstanding in 2014 due to benefit from CPALL
Profit in the fourth quarter is projected to make the year high due to tourism
and celebration season. Despite pressure from political unrest and weak
purchasing power, there would be limited effect on MAKRO, as it runs a
wholesale business that has low competition and has nationwide branches.
Same store sales are likely to grow at least by 5%. Moreover, three new
branches are planned to be opened in 4Q13: Chum Phae (November), Phuket
(medium-sized food service, December) and Nakhonphanom (December).
Benefit from CPALL is expected to be solid from 1H14 on. Firstly, trade
condition would be better (usually, MAKRO discusses with supplier late in a
year), likely to boost MAKRO's margin. Income base would also improve, as
income from new branches opened in 2013 (five large-sized branches and two
medium-sized (food service)) would be booked for a full year, and MAKRO is
projected to open seven branches in 2014, close to CPALL's minimum target
but lower than MAKRO's latest target implied at 8 branches. Thus, FY2014 net
profit is projected to leap by 30%yoy and continuously growing in next five
years at the average rate of 27%p.a, getting among the highest in the sector.
- Good growth but limited upside. "HOLD" for B0.5/share dividend
MAKRO has the most outstanding growth. However, retail sector has been
partially affected by decelerating purchasing power and limited trading
liquidity, having only 2% free float. Conservatively, we derive FY2014 fair
value (DCF, with terminal growth rate revised down from 3% to 2.3%), at
B37.50, which implies limited upside from the current share price. We
reiterate "HOLD" for dividend. Recently, MAKRO announced 9M13 interim
dividend at B0.5/share, or 1.5% dividend yield. XD date is 18 November
2013.