CP All

- 2Q15 profit to grow 33% yoy 

 

We project CPALL’s profit to grow 33%yoy to B3bn in 2Q15; non-interest expenses from MAKRO acquisition (e.g. fee and financial advisory expenses) booked in SG&A would decrease significantly. Combined with interest expenses, gross financial cost would lower from approximately 5.7% in 1Q15 to 4.8%, thus SG&A/sales would decrease from 19.0% to 18.7%. Sales would also improve; same store sales growth is projected to increase from 0.3%yoy in 1Q15 to 1.5%yoy this quarter and 680 new stores have been opened during 3Q14 – 2Q15. Consequently, total revenues would grow by 10%yoy. Profit from MAKRO, a subsidiary, is estimated around B1.16bn, rising only 10%yoy, versus 21%yoy in 1Q15, as a result of market cannibalization. Accordingly, same store sales of MAKRO would stay flat from the same period last year but decrease from 2.8%yoy in 1Q15. 

 

- Profit to peak in 3Q15 

 

Strong profit growth is foreseen in 2H15, especially 3Q15, which will be the year’s peak and a high season of the company from its yearly biggest promotional campaign (stamp campaign). Plus a low base last year, same store sales may be able to show the strongest growth of the year in 3Q15. For the ongoing drought, there is still not sign of decreasing purchasing power from the problem; on the other hand, this is an opportunity of the company to increase sales of drinking water. According to CPALL, its drinking water sales have increased around 10-20% from usually, but it is still insignificant to the profit. Initially, we maintain our forecast. 

 

- Top pick of the sector 

 

CPALL’s profit would remain good and show the strongest growth among peers in the rest of the year, while same store sales, a key indicator, would also improve. Therefore, we select CPALL as a top pick of the sector. Another factor to drive the share price is CPALL’s plan to sell some shares in MAKRO to repay debts and improve the financial status, which could happen late this year or early next year.