CP All

CP All Plc (CPALL)

In-line results

CPALL reported 4Q14 earnings of Bt2.5bn, up 28% YoY but down 7% QoQ. Excluding an FX gain/loss, core profit increased 21% YoY and 4% QoQ. Net profit was 5% below our estimate due to deeper-than-expected SSS contraction and lower margin than assumed.

Results highlights

Revenue rose 7% YoY to Bt95bn in 4Q14, while same-store sales (ex-T&E) fell 3.6% YoY (versus our estimate of 1.5% slippage), due to weak consumption and an unsuccessful stamp campaign (running from July 26-Nov 25). Basket size declined 2% YoY to Bt65 and the number of tickets dipped 1% YoY to 1,235 tickets/store/day.

CPALL rolled out 162 CVS outlets in 4Q14, taking the total to 698 new stores for 2014, versus 607 outlets in 2013.

Convenience Store (CVS) product margin (ex-T&E) was 25.4%, down 20bps YoY due to a 20 bps YoY decline in food margin following a change in sales mix.

CPALL announced a dividend of Bt0.8/share for FY14, translating to a payout ratio of 70% for FY14, down from 77% for FY13.

Outlook

Although the lackluster stamp campaign will have no longer have an impact on 1Q15 performance, SSSG should be only around 1-2% as weak consumption remains the headwind. Despite that, we expect CPALL will be able to deliver core profit growth of 19% in 1Q15 and 26% in 2015, fueled by more aggressive expansion, declining SG&A/sales ratio (as a result of lower fees relating to the acquisition of MAKRO, cost-cutting programs and lower electricity bills), refinancing and the de-gearing effect.

What’s changed?

Weak consumption looks likely to persist throughout 1H15 and the recovery in 2H15 may not be as strong as we previously expected. We thus cut our SSSG assumption for 2015 from 4.5% to 1.5%. Consequently, our FY15 earnings have been cut 7% and YE15 target price has been reduced from Bt52 to Bt49.  

Recommendation

Although the top-line growth period is expected to continue, we believe the slow earnings growth period has ended. Our BUY rating stands.