FRIDAY, March 29, 2024
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Big C Supercenter

Big C Supercenter

Slow growth profile despite more aggressive expansion strategy HOLD

Big C Supercenter Plc (BIGC) 
 
Investment thesis
We have revised our FY16 earnings figure up 4% to factor in more aggressive expansion than we accounted for in our former model. Despite that, we expect the firm to deliver profit growth of only 2% in FY15 and 11% in FY16. With this slow growth profile, we don’t think the current valuation (PERs of 22x FY15 and 19.8x FY16) is at a bargain level. We maintain our HOLD rating with our new YE16 target price of Bt214 (up from Bt210 following the earnings upgrade).
Weak sales continue
Management told an analysts meeting on Friday that the same-store sales contraction of 5.2% in 3Q15 was mainly due to weak consumption and impact from the Bangkok bombings in mid-August. Sales fell significantly after the bombings and saw no recovery in September due to a sharp drop in tourists visiting the stores (particularly its flagship store near the bomb site). Sales maintained weak momentum into October. Although there has been some improvement since early November following improved consumer confidence and a recovery in tourist arrivals, SSS continued to decline. We expect SSS to contract 2.2% in 4Q15 and 2.3% for FY15.
BIGC maintains its target on EBIT margin
BIGC said hard promotional campaigns and a change in its product sales mix (lower proportion of high-margin, non-food items) were major factors behind a 130bps YoY decline in gross margin in 3Q15. However, management believes that the margin will recover strongly in 4Q15 due to a change in pricing and promotional strategies. BIGC has discontinued its discount coupon for whole baskets and offer discounts on only selective items instead. Although EBIT margin in 9M15 was 7.2% (down 20bps YoY), BIGC is confident that its EBIT margin will be maintained at 8.2% for FY15 (unchanged from FY14), implying an EBIT margin of 11% in 4Q15 versus 10.5% in 4Q14. Note that, in our model, we expect an EBIT margin of 10.6% in 4Q15 and 8.1% for FY15.
Slight surprise on expansion plan
Although BIGC opened only seven BigC Markets in 9M15, it reaffirms that it will achieve its target to roll out 18 stores this year. Four stores debuted in October while seven locations are scheduled to open in Nov-Dec. Only Mini BigC will miss the firm’s target to roll out 150 outlets. Only new 80 Mini BigCs will open this year. For next year, BIGC will move more aggressively on expansion of its large format stores. It plans to roll out six hypermarkets (versus only two stores this year), but reduces the number of new BigC Markets and Mini BigCs to three and 75 stores, respectively, in FY16. The advantages of rolling out large format outlets are their higher sales space and greater rental area. Coupled with its renovation plans, sales and rental area should increase 2.6% and 11%, respectively, in FY16.
 
 
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