Siam Makro
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3Q14 earnings missed estimate BUY
Siam Makro Plc (MAKRO)
Profit missed estimate by 9%
MAKRO reported a 3Q14 net profit of Bt1.08bn, up by 5.7% YoY and 2.9% QoQ. The figure was 9% below our model, due to lower-than-expected SSSG and service income.
Results highlights
Sales grew 8.8% YoY to Bt33bn. SSSG was 3.8%, below our assumption of 5% because sales in September were much lower than we had expected. Gross margin resumed an uptrend—up by 38 bps YoY and 81 bps QoQ to 9.05%. Recall that MAKRO set a provision for slow-moving frozen food in 2Q14 as a result of the curfew, which meant that GM was abnormally low for the quarter.
SG&A expenses increased 10.5% YoY to Bt2.4bn, due mainly to higher depreciation and pre-operating expenses for new stores. Because SG&A expenses rose faster than sales, the SG&A/sales ratio expanded 11 bps to 7.17%. However, EBITDA margin still grew by 5 bps YoY to 5.5%.
Service income slipped 5% YoY to Bt634m, lower than our estimate of Bt730m. We suspect that this was due to lower advertising income (both in-store and in Makro mail) as a result of weak consumption.
Outlook
MAKRO’s YoY earnings growth looks set to slow down in the near future because depreciation and pre-operating expenses for new stores will rise. MAKRO has accelerated its expansion plan by opening 13 new stores this year, nine of which will be in 2H14 (four in 3Q14 and five in 4Q14). Strong growth should resume 1H15.
What’s changed?
We have trimmed our earnings forecasts by 4% for FY14 and 8% for FY15, as we have cut our service income assumptions for the two years. Our YE15 target price, thus, declines to Bt46 from Bt48.
Recommendation
Slow earnings growth in 2H14 will prove to be only a short-term phenomenon, we believe. MAKRO’s long-term growth outlook is good, driven by aggressive expansion and operational excellence. Our BUY rating stands.
