Big C Supercenter

Big C Supercenter Plc (BIGC)  

 

- 1Q15 profit grows 14.7%yoy thanks to better profitability 

 

BIGC's 1Q15 net profit was reported at B1,440m, falling 42.8%mom due to seasonal effect but growing 14.7%yoy (as expected) thanks to better profitability like in the previous quarters. Rental revenue (higher margin than sales) rose by 5%yoy, while funding cost dropped by B35m owing to debt repayment. Cost-efficiency and performance improved because of the opening of new goods distribution center and cost-reducing programs, thus boosting normalized margin by 50bps from 1Q14 to 4.8%. These positive factors compensated for weak sales revenue growth of 1.9%yoy (due to weak economy) after same store sales slipped by 0.2%yoy and only four branches of Mini BIGC and five branches of Pure Pharmacy were opened in 1Q15. BIGC aims to open two or three branches of hypermarket, 17 branches of BIGC Market, and 150 branches of Mini BIGC in 2015; new more branches will be opened for the remainder of the year. 

 

- Profit to grow 

 

BIGC's profit is projected to rebound at the same pace as 1Q15 for the remainder of the year. Although the advertisement media contract with VGI was terminated in May 2015, resulting in a drop in other income for the short term, it accounts for less than 5% of BIGC's profit; since BIGC would be able to manage its own advertisement media or find new company to work on advertisement, its profit would be affected only during the short transition. BIGC's profitability is expected to continue improving and compensating for sales that have been depressed by the weak economy. However, investors should keep an eye on the competition between BIGC and Lotus (BIGC's rival). After BIGC has stolen market share from Lotus that previously faced internal problems, Lotus has used many marketing strategies to promote sales e.g. giving coupons and discounts; this would affect BIGC's profitability. 

 

- No driving factor. HOLD 

 

Although FY2015 fair value of B240 has started to show an upside, there is currently no positive factor to boost the share price, and competition has become fiercer. We reiterate HOLD.