CP All CPALL

CP All  Plc (CPALL)

 

- 2Q15 profit grows 39%yoy, better than expected 

2Q15 net profit was B3.14bn, leaping 39%yoy (better than expected, 5% beyond consensus). Thanks to lower-cost refinancing, financial expenses and fee from MAKRO acquisition (booked in SG&A) decreased more than expected, reducing gross financial cost from 6% in 2Q14 to 5.2% in 2Q15. Other figures were in line with our projection. Sales grew by 9.4%yoy owing to 653 new branches, and same store sales growth improved from 0.3%yoy in 1Q15 to 1.1%yoy in 2Q15 (the number of ticket increased from 1,274 in 2Q14 to 1,286 in 2Q15 while spending per ticket stayed at B62/ticket). Gross margin rose by 40bp from 2Q14 thanks to larger proportion of high-margin goods. 

- Profit to grow strong in 2H15, to peak in 3Q15 

1H15 net profit made up 49% of the full-year projection. We maintain our forecast, expecting CPALL's net profit to increase by 32% this year, growing most significantly in the sector. Like in 1H15, CPALL's 2H15 earnings are expected to grow significantly from the same period last year, peaking in 3Q15 owing to its yearly biggest promotional campaign (well-received stamp campaign). According to our study, CPALL has used many sales promotion strategies this year: prizes, participating goods, advertisement during sales promotional, etc. Overall, same store sales are projected to rise by 3%yoy. 

- Share price rises as earnings grows. May not sell MAKRO shares this year 

CPALL’s profit would remain good and show the strongest growth among peers in the long run. We reiterate BUY. 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. Although this is not likely to happen in the near future (possibly late this year or early next year), if CPALL can sell MAKRO's shares at higher price than the cost, it would recognize no extraordinary expense; this profit would directly be booked as shareholders' equity.