CP ALL Public Co Ltd (CPALL TB) Thanachart Securities. Good recovery momentum. BUY (Unchanged) TP: Bt (Unchanged ) 3 JANUARY 2019

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1 BUY (Unchanged) TP: Bt (Unchanged ) 3 JANUARY 2019 New Information Upside : 22.0% CP ALL Public Co Ltd (CPALL TB) Good recovery momentum Thanachart Securities We expect a decent recovery of CPALL s 7-Eleven and subsidiary MAKRO s domestic business in 4Q18F, and for this to confirm the company s hiccup year in 2018 is over. This, along with being a key beneficiary of election and government stimulus spending, leads us to reaffirm our BUY call on CPALL, a country and sector top pick. 7-Eleven looks back on track We expect strong 7-Eleven business momentum in 4Q18F with 2% same-store sales growth (SSSG), margin expansion and more new store openings. Unscathed by a drop in Chinese tourists, the business is being driven by the success of the Line Friends stamp promotion, many local festivals that increase customer traffic, and stronger beverage sales, particularly from All Café (boosted by the hot weather and All Café outlet expansion from 4,600 in 4Q17 to 5,600 in 3Q18, and more in 4Q18). 7-Eleven branch openings ended the year slightly above CPALL s target of 700 new stores, or a 7% increase y-y. Earnings upside for MAKRO in 4Q18F MAKRO s SSSG turned positive in November last year after negative numbers in 2Q-3Q18, whereas gross margins on merchandise sales will likely have started to widen after being pressured by lower butchery and agricultural prices in 1H18. While the momentum of MAKRO s domestic business has improved and could beat our forecast, its overseas business loss may be lower q-q on a delay in launching another branch in India (see below), and the high spending and tourist season in Cambodia. We foresee some potential upside to our 4Q18F profit estimate for MAKRO of Bt1.6bn, down 14% y-y, implying less of a drag on CPALL s 4Q18F profit, which we estimate to fall 5% y-y. Third Indian store postponed MAKRO currently operates three branches outside Thailand: one in Cambodia and two in India. The launch of its third Indian store has been put off from 4Q18 to 1Q19 due to a delay in being awarded a license. Since larger losses tend to be incurred in the store ramp-up period, any opening delays could lead to lower overseas losses vs. our projections, which we estimate to peak at Bt943m this year, before falling to Bt854m next year, Bt639m in 2021F, and Bt403m in 2022F. Store launches in other countries face uncertainties in finding decent locations and getting licenses. We see our new store assumptions as quite aggressive, ie, the same as its expansion plan (see Exhibit 1). Though the launch costs for the third Indian store will be put off, there could be other launch delays (we assume 11 new overseas branches in 2019F). Limited downside risk to our earnings We expect gross margins to recover from 4Q18F, less of a hit to 7-Eleven s bill payment service from banks waiving online fees, a potential consumption boost from government stimulus spending, while we also don t foresee any new negative factors. As such, downside risk to our respective F EPS growth of 12% and 20% y-y appears limited. We reaffirm our BUY call and DCFbased 12-month TP of Bt86/share. COMPANY VALUATION PHANNARAI TIYAPITTAYARUT phannarai.von@thanachartsec.co.th Y/E Dec (Bt m) 2017A 2018F 2019F 2020F Sales 489, , , ,984 Net profit 19,908 20,612 23,042 27,392 Consensus NP 20,857 23,674 27,184 Diff frm cons (%) (1.2) (2.7) 0.8 Norm profit 19,908 20,612 23,042 27,392 Prev. Norm profit 20,612 23,042 27,392 Chg frm prev (%) Norm EPS (Bt) Norm EPS grw (%) Norm PE (x) EV/EBITDA (x) P/BV (x) Div yield (%) ROE (%) Net D/E (%) PRICE PERFORMANCE (Bt/shr) CPALL (%) 100 Rel to SET Index (5) (10) 50 (15) Jan-18 May-18 Sep-18 Jan-19 COMPANY INFORMATION Price as of 3-Jan-19 (Bt) Market Cap (US$ m) 19,692.4 Listed Shares (m shares) 8,983.1 Free Float (%) 56.4 Avg Daily Turnover (US$ m) M Price H/L (Bt) 90.00/63.00 Sector Commerce Major Shareholder CP Group 33.89% Sources: Bloomberg, Company data, Thanachart estimates This report is prepared by Thanachart Securities. Please contact our salesperson for authorisation. Please see the important notice on the back page

2 COMPANY NOTE CPALL PHANNARAI TIYAPITTAYARUT Ex 1: Overseas Store Openings (Our Assumptions Are In Line With The Company s) YE F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F Cambodia India China Myanmar Ex 2: CPALL s Profit Growth Ex-MAKRO Ex 3: MAKRO s Domestic Profit Growth (%) (%) (5) F 2019F 2020F 2021F 2022F F 2019F 2020F 2021F 2022F Ex 4: 12-month DCF-based TP Calculation Using A Base Year Of 2019F (Bt m) 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F Terminal Value EBITDA 46,039 51,151 56,573 62,911 70,602 78,486 86,914 95, , , ,880 Free cash flow 28,606 33,777 38,829 46,090 52,633 61,038 67,658 74,971 83,116 91, ,812 1,419,885 PV of free cash flow 28,527 28,304 29,784 32,363 33,830 35,905 36,432 36,955 37,504 37,929 38, ,731 Risk-free rate (%) 4.5 Market risk premium (%) 7.5 Beta 1.0 WACC (%) 9.2 Terminal growth (%) 2.0 Enterprise value - 912,373 add investments Net debt 125,055 Minority interest 14,805 Equity value 772,513 # of shares (m) 8,986 Equity value/share (Bt) THANACHART RESEARCH 2

3 COMPANY NOTE CPALL PHANNARAI TIYAPITTAYARUT Valuation Comparison Ex 5: Valuation Comparison With Regional Peers EPS growth PE P/BV EV/EBITDA Div yield Name BBG code Country 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F (%) (%) (x) (x) (x) (x) (x) (x) (%) (%) Marks & Spencer Group MKS LN U.K. na (0.4) J Sainsbury SBRY LN U.K Tesco TSCO LN U.K. (5.9) Fujian New Hua Du CH China na na na na na na na Lianhua Supermarket 980 HK China na na na na na na na na Carrefour SA CA FP France na Casino Guichard CO FP France na Aeon 8267 JP Japan (17.8) Lotte Shopping KS S. Korea na na Shinsegae KS S. Korea Amore Pacific Group KS S. Korea (9.6) Wal-Mart Stores WMT US USA 46.8 (1.8) Beauty Community * BEAUTY TB Thailand Berli Jucker * BJC TB Thailand COL * COL TB Thailand COM7 * COM7 TB Thailand CP All* CPALL TB Thailand Central Pattana * CPN TB Thailand Siam Global House * GLOBAL TB Thailand Home Product* HMPRO TB Thailand Karmarts * KAMART TB Thailand 25.5 (28.4) Siam Makro * MAKRO TB Thailand (7.6) MC Group * MC TB** Thailand na Robinson Dept Store * ROBINS TB Thailand Average Sources: Company data, *Thanachart estimates, Based on 3 January 2019 closing prices Note: **MC Fiscal year changed from December to June, starting from June 2018, Year 2018A = January June 2018, Year 2019F = July 2018 June 2019 THANACHART RESEARCH 3

4 APPENDIX CPALL PHANNARAI TIYAPITTAYARUT COMPANY DESCRIPTION C.P. All Pcl (CPALL) is a Thailand-based company that operates convenience stores (CVS) under the 7-Eleven trademark. It has the sole right to operate under this trademark in Thailand. The company also engages in related businesses such as bill payment collection through its subsidiary, Counter Service Co., Ltd., and the manufacture and sale of ready-to-eat foods and bakery items via C.P. Retailing and Marketing Co., Ltd. Other subsidiaries include Retailink (Thailand) Co., Ltd., Thai Smart Card Co., Ltd., Gosoft (Thailand) Co., Ltd., MAM Heart Co., Ltd., Dynamic Management Co., Ltd., Panyatara Co., Ltd. and Suksapiwat Co., Ltd. Source: Thanachart COMPANY RATING Analyst REC. CG rating* Financials Industry Outlook Source: Thanachart; CG Rating Operating Business Outlook Manage ment Rating Scale Excellent 5 Good 4 Fair 3 Weak 2 Very Weak 1 None 0 THANACHART S SWOT ANALYSIS S Strength W Weakness Market leader in Thai CVS and has a natural monopoly with a 64% market share. A cash-cow stock operating 7-Eleven stores in Thailand a very stable and secure business. Too swift expansion may lead to staff shortages. Loss in early years from MAKRO s overseas expansion to Cambodia, India, China and Myanmar. Successful franchise. O Opportunity The Thai CVS market hasn t matured yet while the competitive landscape isn t that fierce. Opportunity to open more stores upcountry as the provinces are still under-penetrated. Growing service income. T Threat The possible implementation of the Retail and Wholesale Business Act. Risk of natural disasters. Risk of theft. CONSENSUS COMPARISON Consensus Thanachart Diff Target price (Bt) % Net profit 18F (Bt m) 20,857 20,612-1% Net profit 19F (Bt m) 23,674 23,042-3% Consensus REC BUY: 23 HOLD: 6 SELL: 2 HOW ARE WE DIFFERENT FROM THE STREET? Our F net profits are 1-3% below the Bloomberg consensus estimates, which we attribute to us factoring in MAKRO incurring larger overseas losses. RISKS TO OUR INVESTMENT CASE A weaker-than-expected economy would have a direct negative impact on the performance of 7-Eleven as it is highly leveraged to domestic consumption, and this presents the key downside risk to our call. If other competitors, for example Tesco Express and Family Mart, expand faster than we currently anticipate and are more successful than we expect now, this would represent a secondary downside risk to our call. If its 93.08%-owned subsidiary, MAKRO, fails in its ventures abroad and generates larger losses than we currently expect. However, our DCF-based TP is 5% above consensus, likely due to our more bullish assumption for its 7-Eleven business and MAKRO s overseas ventures turning a profit from 2023F. Sources: Bloomberg consensus, Thanachart estimates Source: Thanachart THANACHART RESEARCH 4

5 FINANCIAL SUMMARY CPALL PHANNARAI TIYAPITTAYARUT Thai 7-Eleven business is very stable and we expect strong growth potential After a hiccup, we expect a four-year EPS CAGR of 18% over F INCOME STATEMENT FY ending Dec (Bt m) 2016A 2017A 2018F 2019F 2020F Sales 451, , , , ,984 Cost of sales 339, , , , ,983 Gross profit 111, , , , ,001 % gross margin 24.8% 25.2% 25.5% 25.8% 26.0% Selling & administration expenses 83,666 91, , , ,533 Operating profit 28,278 31,261 33,119 36,001 40,468 % operating margin 6.3% 6.4% 6.1% 6.1% 6.3% Depreciation & amortization 7,532 8,744 9,432 10,037 10,683 EBITDA 35,809 40,005 42,551 46,039 51,151 % EBITDA margin 7.9% 8.2% 7.8% 7.8% 7.9% Non-operating income Non-operating expenses Interest expense (8,442) (7,993) (7,831) (7,668) (6,788) Pre-tax profit 20,065 23,507 25,527 28,584 33,943 Income tax 3,323 3,487 4,595 5,145 6,110 After-tax profit 16,742 20,020 20,932 23,439 27,833 % net margin 3.7% 4.1% 3.9% 4.0% 4.3% Shares in affiliates' Earnings Minority interests (143) (111) (320) (397) (441) Extraordinary items 77 (1) NET PROFIT 16,677 19,908 20,612 23,042 27,392 Normalized profit 16,599 19,908 20,612 23,042 27,392 EPS (Bt) Normalized EPS (Bt) BALANCE SHEET FY ending Dec (Bt m) 2016A 2017A 2018F 2019F 2020F ASSETS: Current assets: 69,899 66,573 68,315 68,672 70,832 Cash & cash equivalent 33,443 28,879 27,543 25,166 23,784 Account receivables 1,026 1,601 1,777 1,930 2,117 Inventories 26,705 27,376 30,468 32,940 36,088 Others 8,725 8,717 8,526 8,637 8,843 Investments & loans Net fixed assets 99, , , , ,882 Other assets 183, , , , ,472 Total assets 352, , , , ,220 High debt burden with MAKRO takeover LIABILITIES: Current liabilities: 113, , , , ,243 Account payables 66,959 74,742 80,880 87,441 95,797 Bank overdraft & ST loans 3,516 4,326 11,549 11,456 10,098 Current LT debt 28,038 16,897 14,243 14,130 12,454 Others current liabilities 15,305 16,142 14,164 15,416 14,895 Total LT debt 156, , , , ,087 Others LT liabilities 19,518 19,360 20,495 21,748 23,816 Total liabilities 292, , , , ,146 Minority interest 4,407 4,896 14,805 15,202 15,643 Preferreds shares Paid-up capital 8,983 8,983 8,986 8,986 8,986 Share premium 1,684 1,684 1,684 1,684 1,684 Warrants Surplus 8,285 18,037 18,579 18,579 18,579 Retained earnings 36,244 46,628 52,074 49,397 64,181 Shareholders' equity 55,196 75,333 81,323 78,647 93,430 Liabilities & equity 352, , , , ,220 THANACHART RESEARCH 5

6 FINANCIAL SUMMARY CPALL PHANNARAI TIYAPITTAYARUT CASH FLOW STATEMENT FY ending Dec (Bt m) 2016A 2017A 2018F 2019F 2020F Earnings before tax 20,065 23,507 25,527 28,584 33,943 Tax paid (3,392) (3,344) (4,492) (5,017) (5,979) Depreciation & amortization 7,532 8,744 9,432 10,037 10,683 Chg In w orking capital 2,531 6,537 2,869 3,937 5,020 Chg In other CA & CL / minorities 8,433 7,724 7,681 1,560 (375) Cash flow from operations 35,168 43,168 41,016 39,102 43,292 Business is generating high free cash flows Capex (17,212) (16,011) (12,640) (14,890) (15,110) ST loans & investments 27 (9) LT loans & investments (10) Adj for asset revaluation Chg In other assets & liabilities (6,695) (10,618) (2,035) 360 1,158 Cash flow from investments (23,890) (26,638) (14,675) (14,530) (13,952) Debt financing (523) (21,324) (13,056) (1,231) (18,113) Capital increase Dividends paid (8,085) (8,983) (10,271) (10,914) (12,609) Warrants & other surplus 9,263 (6,560) (3,865) (4,549) 0 Cash flow from financing 655 (36,866) (27,188) (16,693) (30,722) Free cash flow 17,957 27,157 28,376 24,212 28,182 PE is below those of most modern-trade peers, on our estimates VALUATION FY ending Dec 2016A 2017A 2018F 2019F 2020F Normalized PE (x) Normalized PE - at target price (x) PE (x) PE - at target price (x) EV/EBITDA (x) EV/EBITDA - at target price (x) P/BV (x) P/BV - at target price (x) P/CFO (x) Price/sales (x) Dividend yield (%) FCF Yield (%) (Bt) Normalized EPS EPS DPS BV/share CFO/share FCF/share THANACHART RESEARCH 6

7 FINANCIAL SUMMARY CPALL PHANNARAI TIYAPITTAYARUT FINANCIAL RATIOS FY ending Dec 2016A 2017A 2018F 2019F 2020F Growth Rate Sales (%) Net profit (%) EPS (%) Normalized profit (%) Normalized EPS (%) Dividend payout ratio (%) We forecast ROE to head back up from this year Operating performance Gross margin (%) Operating margin (%) EBITDA margin (%) Net margin (%) D/E (incl. minor) (x) Net D/E (incl. minor) (x) Interest coverage - EBIT (x) Interest coverage - EBITDA (x) ROA - using norm profit (%) ROE - using norm profit (%) DuPont ROE - using after tax profit (%) asset turnover (x) operating margin (%) leverage (x) interest burden (%) tax burden (%) WACC (%) ROIC (%) NOPAT (Bt m) 23,594 26,623 27,158 29,521 33,184 THANACHART RESEARCH 7

8 DISCLAIMER CPALL PHANNARAI TIYAPITTAYARUT General Disclaimers And Disclosures: This report is prepared and issued by Thanachart Securities Public Company Limited (TNS) as a resource only for clients of TNS, Thanachart Capital Public Company Limited (TCAP) and its group companies. Copyright Thanachart Securities Public Company Limited. All rights reserved. The report may not be reproduced in whole or in part or delivered to other persons without our written consent. This report is prepared by analysts who are employed by the research department of TNS. While the information is from sources believed to be reliable, neither the information nor the forecasts shall be taken as a representation or warranty for which TNS or TCAP or its group companies or any of their employees incur any responsibility. This report is provided to you for informational purposes only and it is not, and is not to be construed as, an offer or an invitation to make an offer to sell or buy any securities. Neither TNS, TCAP nor its group companies accept any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. The information and opinions contained herein have been compiled or arrived at from sources believed reliable. However, TNS, TCAP and its group companies make no representation or warranty, express or implied, as to their accuracy or completeness. Expressions of opinion herein are subject to change without notice. The use of any information, forecasts and opinions contained in this report shall be at the sole discretion and risk of the user. TNS, TCAP and its group companies perform and seek to perform business with companies covered in this report. TNS, TCAP, its group companies, their employees and directors may have positions and financial interest in securities mentioned in this report. TNS, TCAP or its group companies may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this report. Therefore, investors should be aware of conflict of interest that may affect the objectivity of this report. Note: Thanachart Securities Public Company Limited act as a Market Maker and Derivative Warrants Issuer. At present, TNS has issued 9 Derivative Warrants which are ADVA16C1912A, AOT16C1912A, BANP16C1912A, BDMS16C1912A, CBG16C1912A, CK16C1912A, CPAL16C1912A, PTT16C1912A, TRUE16C1912A (underlying securities are ADVANC, AOT, BANPU, BDMS, CBG, CK, CPALL, PTT, TRUE). Since TNS covers those underlying securities in research report, consequently TNS incurs conflicts of interest. Moreover, Investors are advised to carefully review the details and information in the prospectus before making investment decisions. Note: Our major shareholder TCAP (Thanachart Capital Pcl) which holding 100% of Thanachart Securities, TCAP has stake in THANI for more than 65% and being the major shareholder of THANI. Thanachart Capital Public Company Limited (TCAP), Ratchthani Leasing Public Company Limited (THANI), MBK PUBLIC COMPANY LIMITED (MBK) and PATUM RICE MILL AND GRANARY PUBLIC COMPANY LIMTED (PRG ) are related companies to Thanachart Securities Public Company Limited (TNS). Since TNS covers those securities in research report, consequently TNS incurs conflicts of interest. Recommendation Structure: Recommendations are based on absolute upside or downside, which is the difference between the target price and the current market price. If the upside is 10% or more, the recommendation is BUY. If the downside is 10% or more, the recommendation is SELL. For stocks where the upside or downside is less than 10%, the recommendation is HOLD. Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal recommendation. For sectors, an Overweight sector weighting is used when we have BUYs on majority of the stocks under our coverage by market cap. Underweight is used when we have SELLs on majority of the stocks we cover by market cap. Neutral is used when there are relatively equal weightings of BUYs and SELLs. THANACHART RESEARCH 8

9 DISCLAIMER CPALL PHANNARAI TIYAPITTAYARUT Thanachart Securities Pcl. Research Team 19 Floor, MBK Tower 444 Phayathai Road, Pathumwan Road, Bangkok Tel: Pimpaka Nichgaroon, CFA Head of Research Kalvalee Thongsomaung Food, Hotel, Media Phannarai Tiyapittayarut Property, Retail Siriporn Arunothai Small Cap Research, Healthcare Pattadol Bunnak Auto, Food & Beverage Thaloengsak Kucharoenpaisan, AFPT TM Analyst, Retail Market Adisak Phupiphathirungul, CFA Retail Market Strategy Pattarawan Wangmingmat Senior Technical Analyst Saksid Phadthananarak Construction, Transportation Supanna Suwankird Energy, Utilities Wichaya Wongpanuwich, CFA, FRM Analyst, Retail Market Sittichet Rungrassameephat Assistant Analyst, Quantitative Chak Reungsinpinya Energy, Petrochemical Nuttapop Prasitsuksant Electronics, Telecom Sarachada Sornsong Bank, Financial Rata Limsuthiwanpoom Industrial Estate, Property Fund, REITs Witchanan Tambamroong Technical Analyst THANACHART RESEARCH 9