CPALL

CPALL Plc

Event with CPALL. Last week, we arranged an event that brought together CPALL
management, led by Khun Kriengchai Boonpoapichart, Vice President, Head of Finance
and Investor Relations, with our local institutional clients. Key highlights are below.
SSS growth turned to slightly positive in 2Q14TD from -1.1% YoY in 1Q13 when
weather was unusually cool. SSS growth trend in Bangkok and the provinces was
relatively the same. Earlier, the impact from curfew that closed its stores before
10.00 pm was negative for those in gas stations (14% of total stores). However,
curfew hours were cut back and lifted in some provinces, plus the fact that
consumers simply went earlier to stock up before the stores closed, has brought
sales back close to normal. CPALL expects the return of a mood for spending and
the FIFA World Cup in June-July to help to stimulate sales.
CPALL continues to plan to add 600 stores per year to bring total number of stores
to 10,000 by the end of 2018 (from 7,651 stores at end-1Q14).
CPALL’s private and exclusive brands account for 22% of sales (ready-to-eat food).
CPALL expects this to rise to 25% over the next three years (vs. 40% in Japan). This
will help to create product differentiation and raise traffic per store.
Regarding business synergy with MAKRO, CPALL and MAKRO have joined forces to
negotiate with suppliers and this will be the first visible synergy. Other synergies,
such as in logistics, sharing services (logistics, raw material sourcing within the
group, the development of product cross-selling) will come over time.
CPALL completed debt refinancing of the one-year US$ bridging loan taken out for
the acquisition of MAKRO (Bt183bn) to LT liabilities. The refinancing consisted of:
1) a Bt90bn baht-denominated bond in Oct 2013 and Mar 2014 (average tenor of
seven years, fixed rate at 4.8%); and 2) baht-denominated LT loan of Bt82bn and
unhedged US$ LT loan of Bt11bn (US$350mn) in Mar 2014 (average tenor of 2-6
years, floating rate). CPALL plans to issue more baht bonds to refinance the LT
loans to lock in a more favorable rate during the downward trend and to close its
FX exposure, but the timeline has not yet set.
CPALL holds 98% of MAKRO and may consider increasing MAKRO’s free float if
MAKRO share price moves above its investment cost plus financing cost and
opportunity cost, which could happen when MAKRO delivers the performance
CPALL expects. This is not urgent, since CPALL has completed debt refinancing.
Besides, it expects CPALL’s operational improvement alone to bring net
debt/EBITDA down from 8x in 2013 to below 3x in 2016F and net DE to fall from 6x
in 2013 to below 2x in 2017F.
Kept as sector’s top buy. We expect CPALL to deliver the sector’s highest 2-year EPS
growth of 27% as expenses related to the acquisition of MAKRO subside and synergy
becomes more evident. CPALL will also have the sector’s lowest 2-year PEG of 1.2x.
Earnings momentum will improve from 2H14. BUY with mid-15 DCF PT at Bt58.