CPALL

CPALL Plc   

 

2Q15 net profit Bt3.1bn (Bt0.35/share), +39% YoY but -8% QoQ, good and in line with all estimates. The improvement was due to better convenience store operations (recovering SSS, store expansion and margin improvement), more contribution from cash and carry operations (98% in MAKRO; +11% YoY), and the drop in all-in funding costs via debt refinancing and no more MAKRO deal fees. Its 1H15 accounted for 51% of full-year forecast (in line with the past five years), and we maintain our estimate.   

2Q15 highlights: 

- By business segment. In 2Q15, of total consolidated sales, ~62% came from convenience stores and ~38% from the cash&carry business (97.88% in MAKRO since 3Q13). Of total earnings before tax, 65% came from convenience stores and 35% from the cash&carry business. 

- SSS for convenience stores was +1.1% (vs. +0.5% in 2Q14 and +0.3% in 1Q15), led by better SSS from beverages during the hot season. It averaged 1,243 customers in each of its stores each day, +1% YoY and +4% QoQ. Meanwhile, spending per ticket was Bt62, flat YoY but -2% QoQ.  

- Added 135 convenience stores, raising total stores to 8,469 at end-2Q15 (+8% 

YoY and +2% QoQ). Of total stores, 56% are in the provinces and 44% in Bangkok and its suburbs.  

- Convenience store gross margin 28%, +10bps YoY and +30bps QoQ, thanks to the cut in transportation and logistics costs brought by lower oil price. Gross margin based on its product mix alone slipped 10bps YoY to 26.1% as the fall in gross margin from food products to 26.3% (-30bps, 72.5% of sales) was greater than the rise in gross margin from non-food products to 25.8% (+50bps, 27.5% to sales).  

- SG&A/sales under control and lower interest expenses. SG&A/sales was 

19%, flat YoY, from the absence of expenses from the MAKRO deal and with other expenses under control. Interest expense was Bt2.2bn, -10% YoY and -4% QoQ, thanks to debt refinancing (issuing low-cost debentures worth Bt173bn to refinance its LT loans; Bt50bn in 2013, Bt90bn in 2014, and Bt33bn in 1H15) and benefit from lower interest rates. We estimate its effective interest rate at 4.7% in 2Q15, down from 4.9% in 1Q15.   

- Keep as sector’s top BUY, raise TP to Bt58. 1H15 was outstanding and we expect this to continue through the remainder of the year with the sector’s best earnings growth, underwritten by better operations at its convenience and cash & carry stores plus lower funding costs. There is earnings upside if it sells some of its stake in MAKRO. We estimate the same of 10% of its holding in MAKRO would raise CPALL’s earnings by 2% (lower funding cost from debt repayment outpacing the lower contribution from MAKRO). We maintain BUY with a new mid-2016 DCF PT of Bt58 (from Bt54 at end-2015). More details will be provided after the meeting on August 18.