Siam Makro

Siam Makro Plc (MAKRO)

At the analyst meeting yesterday, MAKRO explained that the rise in SG&A (3Q12 was
14% below consensus) came from the rise in minimum wage and higher insurance
premium. In line with this, we cut our 2012-13F by 4-8% factoring in higher personnel
cost as our SG&A to sales ratio assumption for next year may be on the optimistic side
since in January the government plans to raise minimum wage to Bt300/day
nationwide from just seven provinces now. We now expect profit to grow 19% p.a. for
2012-14F (we are 7% below consensus for 2013F). With MAKRO trading on 27x PER
2013F - close to +2std - we feel valuation is stretched, especially given the emergence
of downside risk to earnings. We maintain our Neutral rating with year-end 2013 TP of
Bt420/sh.

Key takeaways from analyst meeting:

Jump in SG&A: SG&A to sales jumped 25bps YoY and 70bps QoQ to 7.2%, pulling
profit below consensus. MAKRO said it booked an additional Bt60mn expense from
the rise in minimum wage in 3Q12 plus costs were raised by the opening of new
stores.

SSS growth moderated to 8.4% YoY in 3Q12 from 9.1% in 2Q12. While SSS
growth for fresh food remained strong +15.7% YoY, SSS growth for dry food and
non-food moderated. For 9M12 SSS growth is 9.7%

Opened 2 new stores recently. MAKRO opened its 56th store in Bangplee and
57th store in Phetchabun on October 17 and November 7 respectively; completing
its expansion of five new stores this year. For next year it has already obtained
store permit for locations in Mukdahan, Satun and Trat.

New investment in Vietnam only at study stage. Regarding its setup of a new
company in Vietnam under the name Vina Siam Food (VSF) with initial investment
of Bt31.7mn; MAKRO explained that this is to explore opportunity and a lot more
studies have to done before it can come up with any concrete plans.

Will expand distribution center, will operate at full capacity next year. Its
current distribution center can serve up to 60 stores which MAKRO will reach next
year. Management explained that it is near conclusion with talks with logistic
companies and will choose an outsource company soon (it uses cross dock).

Forecast profit of Bt948mn in 4Q12F; +9% YoY and + 25% QoQ. The huge jump
QoQ is due to seasonal factors. 4Q12 profit is 10% below our earlier estimate as we
factor in higher SG&A expense.

Maintain Neutral with year end 2013 TP of Bt420/sh. Our TP rises slightly
from Bt400/sh. Factoring in earnings cut and roll over our valuation to year end
2013 from mid-2013