Big C Supercenter

Big C Supercenter Plc (BIGC)  

 

- 4Q14 profit better than expected from high profitability  

 

BIGC's 4Q14 net profit made the year's peak at B2.5bn, jumping 61%qoq but slipping 4%yoy (14% better than expected, but 8% below consensus). Although 4Q13 profit base was very strong as a result of unusually high subsidies from suppliers and other income, 4Q14 profit was actually very high and made the highest of the year thanks to the following factors: 1) SG&A/Sales decreased from 4Q13 by 40bps since BIGC has efficiently controlled expense and improved its profitability for many quarters; 2) Rental income rose by 5%yoy as BIGC has more leasable spaces; and 3) Funding cost decreased by B70bn after BIGC repaid its debt. However, 4Q14 profit contracted yoy since gross margin and other income fell from the very high base in 4Q13 while sales revenue stayed flat yoy. Overall, FY2014 earnings grew by 4%, 4% better than expected.

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- Revise up FY2015-2016 earnings forecast by 5% p.a    

 

We have more positive outlook on BIGC since its profit has rebounded for over three quarters. Control on operating cost has improved and rental revenue has risen, compensating for decreasing sales due to the slowing economy. BIGC's profit is expected to continue growing in 2015 since a new raw food distribution center would be opened in 2Q15 (boosting profitability and minimizing loss) and its earnings improved beyond expectation in 2014. We revise up BIGC's earnings forecast by 5%p.a in 2015-2016 to reflect better profitability, but still conservatively maintain same store sales growth projection at 1% and project sales from new branches at the same level as 2014. Under the new forecast, FY2015 net profit is estimated to grow 14%yoy. 

 

- Upgrade recommendation from SELL to HOLD   

 

BIGC's profit has improved, likely to grow again this year. FY2015 fair value (24x P/E ratio + seven-year 1SD) is B240, implying 5% upside. BIGC's P/E ratio is lower than the sector's average of 27x. We upgrade our recommendation from SELL to HOLD. FY2014 dividend is B2.62 (1.1% 

dividend yield); XD date is April 17, and dividend will be paid on May 7.