SIAM MAKRO

SIAM MAKRO Plc (MAKRO)

- 1Q14 profit grows 26%yoy thanks to high gross margin
Despite the political unrest, 1Q14 net profit was reported at B1,271m, falling
3%qoq due to low season but rising 26%yoy (5.7% above consensus), staying
strong for the second consecutive quarter. Overall sales volume grew by
12.5%yoy. Though sales volume in Bangkok rose by only 6%yoy, lower than
usual (8-11%yoy) as a result of the political unrest, sales volume in other
province leapt by 14.7%yoy. Same store sales possibly grew by over 5%yoy
(the highest in retail sector). Gross margin increased significantly by 40bps to
8.9%, thanks to high-margin goods used in hotel and restaurant businesses.
Moreover, MAKRO's trade term improved probably thanks to CPALL's takeover
of MAKRO (waiting for the company's confirmation). SG&A/Sales also dropped
by 20bps to 6.5%. After the increase in minimum wage two years ago, 1Q14
personnel expense base stayed unchanged yoy. Though personnel expense
rose as new branches were opened, it was negated by a good control on
expense and efficient management.
- Most outstanding profit growth in sector
MAKRO's profit is likely to grow further throughout 2014. FY2014 net profit is
expected to grow by 24%yoy, most outstanding in the sector (1Q14 net profit
made up 24% of FY2014 earnings forecast), as MAKRO runs a wholesale
business that has few rivals. Conservatively, we expect seven new branches to
be opened (waiting for the company's official announcement) and project
FY2014 same store sales to grow by 5%. Also, gross margin is projected to
grow further. We preliminarily expect FY2014 net margin to rise by 30bps
(yoy) to 3.7%, possibly revising up if it grows beyond our expectation.
- More expensive than peers. Switch to more attractive CPALL
Current share price is more expensive than peers. FY2014 expected P/E ratio
of 29.4x is higher than the sector's average of 26.4x. We recommend holding
and switching to CPALL that is less expensive and also benefits from
acquisition of MAKRO.