CP All CPALL TB / CPALL.BK Siam Makro MAKRO TB / MAKR.BK What happens if CPALL reduces its stake in MAKRO?

Transcription

1 COMPANY UPDATE CP All CPALL TB / CPALL.BK Siam Makro MAKRO TB / MAKR.BK What happens if CPALL reduces its stake in MAKRO? Sector: Consumer/Retail Neutral 17 June 1 Investment thesis MAKRO s recent share price rally has increased the probability of CPALL reducing its stake in the firm the stock is now just below the price that CPALL acquired it at (plus carrying costs of.). A stock sell-down would benefit both CPALL and MAKRO, but we would prefer to play CPALL on this theme, due to its cheaper valuation and the scope for an earnings forecast upgrade. We have raised our YE1 target prices to Bt (from Bt) for CPALL and to Bt3. (from Bt3.) for MAKRO, due to a lower BLS house discount rate assumption. What happens if CPALL cuts its stake in MAKRO? CPALL currently holds of MAKRO, but has said earlier that it would reduce its stake to below under the right conditions. Selling down stock would free up the balance sheet and would also boost CPALL's earnings in the short- to mid-term, as a result of both a non-recurring gain and from core profit enhancement through interest savings its mean interest cost is.7, based on the last bond issue, which is higher than MAKRO s forecast earnings yields of.7 for FY1 and 3.3 for FY1. Impact on CPALL s earnings We have run a sensitivity analysis to determine what gains would result from different timings for stock sell-downs and final levels of holdings in MAKRO (Figure 1). Our analysis assumes that CPALL would sell MAKRO shares at a price that covers the carrying costs. If the sell-down were to take place in July and CPALL s stake were to fall to, it would book a gain from the stock sale of Bt3.bn in FY1, while its core earnings would increase by Bt71m in FY1 and by Bt1.bn in FY1. This scenario would prompt us to upgrade our profit forecasts by 3 for FY1 and by for FY1. Impact on CPALL s balance sheet If CPALL were to reduce its holding in MAKRO to this year, its net gearing ratio would fall from.7 at end-march to. at YE1 and its net debt/ebitda ratio from. to.. That is much faster than the firm s target of cutting net gearing to. and the net debt/ebitda ratio to 3. by FY17. The net gearing and net debt/ebitda ratios would drop even further to 1. and 1.9, respectively, if CPALL s stake in MAKRO were to decline to. Impact on MAKRO MAKRO s fundamentals wouldn t be affected, by CPALL cutting its stake, nor would synergy-building and cooperation between the two firms. The major change for MAKRO would be a sharp rise in trading liquidity. A free float on a market capitalization of Btbn would be huge. Given MAKRO s promising outlook, we would epect the stock to eventually be included in the SET and MSCI indices again. CPALL Rating: BUY Target Price: Bt. Price (1 June 1): Bt. MAKRO Rating: HOLD Target Price: Bt3. Price (1 June 1): Bt. CPALL financial summary FY Ended 31 Dec 13 1E 1E 1E Revenues (Btm) 7,8 373,887,8 8,91 Net profit (Btm) 1,37,798 17,77 3,78 EPS (Bt) EPS growth () Core profit (Btm) 11,3,1 17,77 3,78 Core EPS (Bt) Core EPS growth () PER () PBV () Dividend (Bt) Dividend yield () ROE () CG rating MAKRO financial summary FY Ended 31 Dec 13 1E 1E 1E Revenues (Btm),38 1,38 1,83 191, Net profit (Btm),99,1,9 7,9 EPS (Bt) EPS growth () Core profit (Btm),99,1,9 7,9 Core EPS (Bt) Core EPS growth () PER () PBV () Dividend (Bt) Dividend yield () ROE () CG rating Chaiyatorn Sricharoen, CFA Securities Fundamental Investment Analyst chaiyatorn@bualuang.co.th See disclaimer at the end of report

2 Figure 1 : Sensitivity analysis Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Jan-1 Feb-1 Mar-1 Apr-1 May-1 Jun-1 Acquisition price + carrying costs (Bt) Gain/share (Bt) Divestment gain (Btm),7,93,1,33,9,381,81 7, 7, 8,7 8, 8,93 3,89,3,78,9,33,71,9,8,88 7,9 7, 7,997 3,383 3,713,,377,7,8,38,71,9,38,7 7, Final holding Impact on CPALL s FY1 core earnings (Btm) Final holding Impact on CPALL s FY1 core earnings (Btm) 1,33 1,33 1,3 1,38 1,3 1,3 1,3 1,8 1,18 1, ,191 1,19 1, 1,7 1, 1,18 1,3 1, 1, , 1,7 1,1 1, 1,71 1,7 1, Final holding Sources: Company data, Bualuang Research CPALL, MAKRO -

3 CPALL : Financial Tables Year PROFIT & LOSS (Btm) 13 1E 1E 1E Revenue 188,7 7,8 373,887,8 8,91 Cost of sales and services (1,91) (1,7) (97,917) (339,37) (38,3) Gross profit 8,11 1,9 7,97 87,19 99,77 SG&A (3,73) (8,39) (,777) (73,3) (81,9) EBIT 13,1 1,1, 3,8 3,813 Interest epense () (,1) (8,37) (8,37) (7,899) Other income/ep. 9,7,313 1,38 1,71 18,78 EBT 13,9 13,19 1,19,331 9,8 Corporate ta (,913) (,9) (3,11) (,) (,817) After-ta net profit (loss) 11,3 11,,783 17,8 3,8 Minority interest () (91) (1) (18) (191) Equity earnings from affiliates Etra items 39 (98) 177 Net profit (loss) 11,9 1,37,798 17,77 3,78 Reported EPS Fully diluted EPS Core net profit 11,1 11,3,1 17,77 3,78 Core EPS EBITDA 1,89 19,78 3,71 37,39, KEY RATIOS Revenue growth () Gross margin () EBITDA margin () Operating margin () Net margin () Core profit margin () ROA () ROCE () Asset turnover () Current ratio () Gearing ratio () Interest coverage () n.m BALANCE SHEET (Btm) Cash & Equivalent 3,,8 1,1,8,891 Accounts receivable ,1 1,113 1,317 Inventory 9,18 19,91 18,979,979 3,1 PP&E-net 18,9 71, 7,93 78,7 81,911 Other assets 9,38 17,13 18,939 18,9 18,9 Total assets 7,18 88, 8,87 9,389 98,3 Accounts payable 3,8,73 7,31,93 7,7 ST debts & current portion 13,13 13,3,1 3,9 Long-term debt, 11,1 13,99,9 Other liabilities,33 1,781 1,1 17,89,3 Total liabilities,8,8 7,331,98 3,89 Paid-up capital 8,983 8,983 8,983 8,983 8,983 Share premium 1,8 1,8 1,8 1,8 1,8 Retained earnings 1,9 19,397,17 33,77 7,818 Shareholders equity 7,11 8,781 33,91 3,111 7, Minority interests,,,97,33 Total Liab.&Shareholders' equity 7,18 88, 8,87 9,389 98,3 CASH FLOW (Btm) Net income 11,9 1,37,798 17,77 3,78 Depreciation and amortization 3,38,,7 7, 7,87 Change in working capital 8,878 3,31 3,9 3,3,378 FX, non-cash adjustment & others (),831 8,378 8,8 8,13 Cash flows from operating activities 3,3 1, 3,71 3, 1,8 Cape (Invest)/Divest (,) (,3) (8,37) (8,3) (8,9) Others (,7) (179,38) Cash flows from investing activities (8,) (191,9) (8,1) (8,9) (8,73) Debt financing (repayment) () 9,3 (8,981) (18,37) (11,99) Equity financing Dividend payment (,) (8,13) (8,88) (8,88) (8,98) Others (,7) (179,38) Cash flows from financing activities (,1) 1,177 (7,8) (,3) (,8) Net change in cash 8,91 (8,8) (,9) 1, 11,88 Free cash flow (Btm) 1,77 9,1,39 7,79 3,38 FCF per share (Bt) Key Assumptions Store number,8 7,9 8,9 8,9 9,9 Same-store-sales growth e T&E Food margin Non-food margin e T&E Revenue growth and asset turnover Revenue growth () (LHS) Asset turnover () (RHS) E 1E 1E A/C receivable & A/C payable days days Bt,bn Inventory turnover (days) AP / Cost of Goods (days) E 1E 1E Profit margins Gross margin () EBIT margin () E 1E 1E Capital ependiture ROCE Cape (Bt,bn) Cape / Net PPE () E 1E 1E ROCE () () E 1E 1E Dividend payout Bt/Shr Dividend (Bt) Payout ratio () E 1E 1E CPALL, MAKRO - 3

4 CPALL : Financial Tables Quarter QUARTERLY PROFIT & LOSS (Btm) 1Q13 Q13 3Q13 Q13 1Q1 Revenue,39 1,8 8,31 88,1 8,18 Cost of sales and services (37,389) (37,) (,138) (7,7) (8,) Gross profit 13, 13,7 17,13 17,939 18, SG&A (11,8) (,) (1,3) (17,8) (1,9) EBIT 1, ,7 Interest epense () (7) (91) (1,177) (1,3) Other income/ep.,3,79 3,8 3,,991 EBT 3,93 3,1 3,7, 3,3 Corporate ta (71) (3) (8) () (3) After-ta net profit (loss) 3,19, 3,87,8,9 Minority interest (8) (8) (3) () (31) Equity earnings from affiliates Etra items 3 37 (391) (17) 177 Net profit (loss) 3,18,9,,1,7 Reported EPS Fully diluted EPS Core net profit 3,183, 3,1,18,8 Core EPS EBITDA,17,3,8,,97 KEY RATIOS Gross margin () EBITDA margin () Operating margin () Net margin () Core profit margin () BV (Bt) ROE () ROA () Current ratio () Gearing ratio () Interest coverage () n.m QUARTERLY BALANCE SHEET (Btm) Cash & Equivalent 3,987 3,71 19,9,8 1,73 Accounts receivable Inventory 9,8 1, 17,37 19,91 19,9 PP&E-net 19,81 38,,1 71, 73,9 Other assets 8,81 11,3 199,7 17,13 18, Total assets 73, 3,93 77,7 88, 3,81 Accounts payable 31,3,337,8,73 9,19 ST debts & current portion 13,333 18,17 13,13 3,8 Long-term debt 93,33 Other liabilities 11,1 1,7 1,73,781 1, Total liabilities 3,8,71,889,8 7,17 Paid-up capital 8,983 8,983 8,983 8,983 8,983 Share premium 1,8 1,8 1,8 1,8 1,8 Retained earnings,131 1,9 17,3 19,397, Shareholders equity 3,97 3,18, 8,781 31,388 Minority interests,8,38,,8 Total Liab.&Shareholders' equity 73, 3,93 77, 88, 3,81 Key Statistics 1Q13 Q13 3Q13 Q13 1Q1 Store number 7,1 7,1 7,319 7,9 7,1 Same-store-sales growth e T&E Food margin Non-food margin e T&E Revenue trend Bt,bn Revenue (Bt,bn) (LHS) 1 Revenue growth ( YoY) Revenue trend (accumulated) Bt,bn Accum. Revenue (Bt,bn) of FY Revenue Net profit trend (accumulated) Bt,m Accum. Profit (Bt,m) of FY Profit, 1 1 1, , 8,, 3 1, Gross profit margin FY GPM () Gross margin () EBIT margin FY EBIT margin () EBIT margin () Company profile CP All holds an eclusive lifetime franchise to operate a 7-Eleven store chain in Thailand. The firm currently has around 7,7 7-Eleven outlets nationwide, making it the biggest convenience store operator in the country. CPALL currently holds stake in MAKRO. CPALL, MAKRO -

5 MAKRO : Financial Tables Year PROFIT & LOSS (Btm) 13 1E 1E 1E Revenue 1,1,38 1,38 1,83 191, Cost of sales and services (,7) (11,73) (131,81) (1,97) (173,39) Gross profit 9,38 1,9,787 1,98 17, SG&A (7,19) (8,98) (9,1) (1,79) (,) EBIT,777,1,73 8,31 1,199 Interest epense (8) (8) (1) (118) (18) Other income/ep.,81 3,13 3,1,1,9 EBT,9,,1 8,113 1,3 Corporate ta (1,13) (1,7) (1,) (1,7) (,17) After-ta net profit (loss) 3,,99,1,9 7,9 Minority interest Equity earnings from affiliates Etra items Net profit (loss) 3,,99,1,9 7,9 Reported EPS Fully diluted EPS Core net profit 3,,99,1,9 7,9 Core EPS EBITDA,99,81 8,18 9,83,71 KEY RATIOS Revenue growth () Gross margin () EBITDA margin () Operating margin () Net margin () Core profit margin () ROA () ROCE () Asset turnover () Current ratio () Gearing ratio () Interest coverage () BALANCE SHEET (Btm) Cash & Equivalent,,11,1,39 7,388 Accounts receivable Inventory 7,7 9,79 9, 9,77 1, PP&E-net 1,99 18,98 19,833,731,11 Other assets,,9,899,83,798 Total assets 3,91 3,1 37,7, 7,7 Accounts payable 1,78 18,177 18,373,113 1,9 ST debts & current portion,1 3,17, 3,, Long-term debt Other liabilities 3, 3,739 3,9,8,9 Total liabilities 1,8,83,78 7,81 31,17 Paid-up capital,,,,, Share premium 3,9 3,9 3,9 3,9 3,9 Retained earnings,17,331 7,181 8,7 1,83 Shareholders equity 1,83 11,1,871 1,3 1, Minority interests Total Liab.&Shareholders' equity 3,91 3,1 37,7, 7,7 CASH FLOW (Btm) Net income 3,,99,1,9 7,9 Depreciation and amortization 1,19 1,331 1, 1,3 1,87 Change in working capital 99 (31) FX, non-cash adjustment & others (81) CF from operating activities,1,3 7,77 9,138 1,889 Cape (Invest)/Divest (,88) (3,39) (3,13) (,8) (,) Others 1 CF from investing activities (,831) (3,39) (3,13) (,8) (,) Debt financing (repayment) 8 1,7 (7) 1, 1, Equity financing Dividend payment (,8) (,1) (3,3) (,9) (,7) Others 1 CF from financing activities (,3) (3,73) (,7) (3,9) (,) Net change in cash (197) (1,) ,9 Free cash flow (Btm),319,7,37,8,89 FCF per share (Bt) Key Assumptions Same-store-sales growth Store number (large format) Store number (frozen shop) Sales space growth () Revenue growth and asset turnover Revenue growth () (LHS) Asset turnover () (RHS) 1 1 days E 1E 1E A/C receivable & A/C payable days AR / Sales (days) AP / Cost of Goods (days) E 1E 1E Profit margins Gross margin () EBIT margin () E 1E 1E Capital ependiture Bt,bn Cape (Bt,bn). Cape / Net PPE () E 1E 1E Debt serviceability (ST debt + Interest) / EBITDA (Debt + Interest) / EBITDA E 1E 1E Dividend payout Dividend (Bt) Bt/Shr Payout ratio () E 1E 1E CPALL, MAKRO -

6 MAKRO : Financial Tables Quarter QUARTERLY PROFIT & LOSS (Btm) 1Q13 Q13 3Q13 Q13 1Q1 Revenue 3,711 3,87 3,3 3,7 3, Cost of sales and services (8,87) (8,) (7,787) (31,7) (31,3) Gross profit,,3,3 3,1 3,9 SG&A (,) (,1) (,19) (,73) (,7) EBIT Interest epense () (7) (1) () (31) Other income/ep EBT 1,37 1,1 1,9 1,8 1, Corporate ta (97) () (71) (33) (39) After-ta net profit (loss) 1,1 99 1, 1,3 1,71 Minority interest Equity earnings from affiliates Etra items Net profit (loss) 1,1 99 1, 1,3 1,71 Reported EPS Fully diluted EPS Core net profit 1,1 99 1, 1,3 1,71 Core EPS EBITDA 1, 1,77 1,8 1,91 1,98 KEY RATIOS Gross margin () EBITDA margin () Operating margin () Net margin () Core profit margin () BV (Bt) ROE () ROA () Current ratio () Gearing ratio () Interest coverage () QUARTERLY BALANCE SHEET (Btm) Cash & Equivalent 7,87,1,99,11,388 Accounts receivable Inventory 7,39 7,3 7,88 9,79 9, PP&E-net 17,89 18, 18,333 19,17,31 Other assets 1,9 1,7 1,3 1,91 1,79 Total assets 3,99 3,3 3,33 3,1 3,17 Accounts payable 1,1 13,879 1,3 18,177 1,8 ST debts & current portion,11,1,7 3,17 3,8 Long-term debt Other liabilities 3,999,83 3,7 3,7,18 Total liabilities,7 18,939 19,91,83, Paid-up capital,,,,, Share premium 3,9 3,9 3,9 3,9 3,9 Retained earnings,18,1,,331,1 Shareholders equity 11,87 11,91,117 11,1,93 Minority interests Total Liab.&Shareholders' equity 3,99 3,3 3,33 3,1 3,17 Key Statistics Same-store-sales growth Store number (large format) 8 3 Store number (frozen shop) Sales space growth (YoY) Revenue trend Bt,bn Revenue (Bt,bn) (LHS) Revenue growth ( YoY) Bt,m Accum. Profit (Bt,m) of FY Profit, 1 1, 1 3, 7 8, 3 1, Revenue trend (accumulated) FY EBIT margin () EBIT margin () Accum. Revenue (Bt,bn) Bt,bn of FY Revenue Net profit trend (accumulated) Gross profit margin FY GPM () Gross margin () 1 8 EBIT margin Company profile Siam Makro (MAKRO) operates wholesale cash & carry stores under the brand Makro. The firm currently has 7 outlets nationwide nine in greater Bangkok and 8 in the provinces. In addition, MAKRO has five mini shops, called Siam Frozen, selling frozen food for professionals, and also has a 1 stake in Siam Food Services, a leading provider of premium imported food products, value-added services and logistics services to hospitality and food service operators nationwide. CPALL, MAKRO -

7 Regional Comparisons Bloomberg Price Market Cap Code (local curr.) PER () EPS Growth () PBV () ROE () Div Yield () (US$ equivalent) 1E 1E 1E 1E 1E 1E 1E 1E 1E 1E Suning Appliance Co Ltd CH CNY7.3 8,18 n.a. n.a Wumart Stores Inc HK HKD. 1, Parkson Retail Group 338 HK HKD Nitori Hldg Co Ltd 983 JT JPY,9., Lawson Inc 1 JT JPY7,9. 7, Seven & I Holdings Co Ltd 338 JT JPY,9. 3, Family Mart 88 JP JPY,7., President Chain Store Corp 9 TT TWD3. 8, Capitaland Limited CAPL SP SGD3. 1, SM Prime Holdings Inc. SMPH PM PHP1.1 1, Home Depot HD US USD , Costco whole sale corp COST US USD11., Carrefour CA FP EUR., Home Product Center HMPRO TB THB9.3 3, Big C Supercenter BIGC TB THB7., Beauty Community BEAUTY TB THB n.m Karmarts KAMART TB THB n.m..9.8 Berli Jucker BJC TB THB7., C.P. All CPALL TB THB., Central Pattana CPN TB THB8.7, Siam Global House GLOBAL TB THB13. 1, Robinson Department Store ROBINS TB THB7. 1, Officemate OFM TB THB Siam Makro MAKRO TB THB., Simple average CPALL PER band versus SD (net months) 8 +3 SD =. + SD = SD = 8.8 Average = SD = SD =. YE YE7 YE8 YE9 YE1 YE11 YE YE13 YE1 MAKRO PER band versus SD (net months) + SD = SD = SD = SD =. LT-average = SD = YE YE7 YE8 YE9 YE1 YE11 YE YE13 YE1 CPALL PBV band versus SD (net months) SD = SD = SD = Average = SD = YE YE7 YE8 YE9 YE1 YE11 YE YE13 YE1 MAKRO PBV band versus SD (net months) +3 SD = SD = SD = LT-average =.7-1 SD = 1. YE YE7 YE8 YE9 YE1 YE11 YE YE13 YE1 CPALL, MAKRO - 7

8 Bualuang Securities Public Company Limited DISCLAIMER BUALUANG SECURITIES PUBLIC COMPANY LIMITED (BLS) is a subsidiary of BANGKOK BANK PUBLIC COMPANY LIMITED (BBL). This document is produced based upon sources believed to be reliable but their accuracy, completeness or correctness is not guaranteed. The statements or epressions of opinion herein were arrived at after due and careful consideration to use as information for investment. Epressions of opinion contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information shall be at the sole discretion and risk of the user. BUALUANG SECURITIES PUBLIC COMPANY LIMITED MAY BE IN RELATIONSHIP WITH THE SECURITIES IN THIS REPORT. Opinions, projections and other information contained in this report are based upon sources believed to be accurate including the draft prospectus, but no responsibility is accepted for any loss occasioned by reliance placed upon the contents hereof. Bualuang Securities Public Company Limited may from time to time perform investment, advisory or other services for companies mentioned in this report, as well as dealing (as principal or otherwise) in, or otherwise being interested in, any securities mentioned herein, This report does not constitute a solicitation to buy or sell any securities. Investors should carefully read details in the prospectus before making investment decision. BUALUANG SECURITIES PUBLIC COMPANY LIMITED ACTS AS MARKET MAKER AND ISSUER OF DWs UNDERLYING STOCKS. Investors should carefully read the details of the derivative warrants in the prospectus before making investment decisions. (Please file information: BUALUANG SECURITIES PUBLIC COMPANY LIMITED IS OR MAY BE A UNDERWRITER/CO-UNDERWRITER/JOINT LEAD IN RESPECT OF THE INITIAL PUBLIC OFFERING ( IPO ) OF SECURITIES. Financial Advisor Lead underwriter/ Underwriter/ Co-underwriter AIRA, SAPPE Score Range Score Range Description 9 1 Ecellent 8 89 Very Good 7 79 Good 9 Satisfactory 9 Pass Below No logo given N/A CORPORATE GOVERMANCE REPORT DISCLAIMER This research report was prepared by Bualuang Securities Public Company Limited and refers to research prepared by Morgan Stanley. Morgan Stanley does not warrant or guarantee the accuracy or completeness of its research reports. Morgan Stanley reserves copyright and other proprietary rights in the material reproduced in this report. Morgan Stanley is under no obligation to inform Bualuang Securities or you if the views or information referred to or reproduced in this research report change. Corporate Governance Report disclaimer The disclosure of the survey result of the Thai Institute of Directors Association ( IOD ) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Echange Commission. The survey of the IOD is based on the information of a company listed on the Stock Echange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not base on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. Bualuang Securities Public Company Limited does not conform nor certify the accuracy of such survey result. BUALUANG RESEARCH RECOMMENDATION FRAMEWORK STOCK RECOMMENDATIONS SECTOR RECOMMENDATIONS BUY: Epected positive total returns of 1 or more over the net HOLD: Epected total returns of between -1 and +1 over the net SELL: Epected negative total returns of 1 or more over the net TRADING BUY: Epected positive total returns of 1 or more over the net 3 OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is epected to outperform the relevant primary market inde over the net NEUTRAL: The industry, as defined by the analyst's coverage universe, is epected to perform in line with the relevant primary market inde over the net UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is epected to underperform the relevant primary market inde over the net CPALL, MAKRO - 8