1. business and industrial
2. company
3. earnings

COMPANY UPDATE
Thailand
Siam Makro
(MAKRO.BK/MAKRO TB)
3Q14 earnings review: Slightly off the consensus
Underperform‧Maintained
Price as of 5 November 2014
39.00
12M target price (Bt/shr)
44.00
Unchanged / Revised up (down) (%) Unchanged
Upside/downside (%)
12.82
Key messages
MAKRO reported a 3Q14 net profit of
Bt1.08bn, up 5.7% YoY and 2.9% QoQ. The
result was slightly off from the Bloomberg
Consensus at Bt1.1bn. We expect the good
earnings momentum to continue in 4Q14 as it is
the high season for retail business. With a
strong 4Q14 and 9M14 net profit accounting
for 66.0% of our full-year forecast, we are
maintaining our 2014 net profit forecast of
Bt5.2bn. Going forward, ongoing expansion
and economic recovery should help boost 2015
earnings 24.5% YoY to Bt6.4bn. Though we
like MAKRO in terms of its promising expansion
plan and good earnings outlook, the current
share price is already near our 2015 DCF target
price of Bt44.00. Hence, we maintain a rating of
Underperform on the counter.
Event
MAKRO reported a 3Q14 net profit of Bt1.08bn, up 5.7% YoY and 2.9% QoQ. The
result was slightly off from the Bloomberg Consensus at Bt1.bn. Its 9M14 net profit
accounts for 66.0% of our full-year forecast.
lmpact
The improvements both YoY and QoQ were mainly due to i) strong sales growth of 8.8%
YoY to Bt33.1bn thanks to repeat buying from customers, particularly in the HORECA
sector, and two new stores added in Salaya and Pattalung during the quarter, and ii)
gross profit margin (GPM) improving 40bps to 9.0% due to a good product mix.
We are maintaining our full year forecast of Bt5.2bn. The key supports are i) strong earnings
outlook in 4Q14 as it is the high season and a boom in tourism which supports strong
demand particularly in HORECA, ii) aggressive expansion plan of 13 stores in 2014, and iii)
increase in GPM from the high rebate from suppliers as the company expands and a good
product mix.
With four construction licenses obtained, at least four new stores can be added in 2015 and
we believe the company can achieve our 2015 expansion target of 10 new stores.
Meanwhile, SSSG should rebound strongly to 8.5% in tandem with the economic recovery
and low base in 2014. We expect 2015 sales to rise 20.8% YoY to Bt181.0bn. In addition,
GPM is likely to increase 20bps to 8.9% thanks to good merchandising and clear synergy
with C.P. All (CPALL.BK/CPALL TB)* such as trade benefits from same suppliers. Hence,
2015 net profit is anticipated to increase 24.5% YoY to Bt6.4bn.
Valuation and action
Though we like MAKRO in terms of its promising expansion plan and good earnings
growth of 24.5% YoY in 2015, the current share price is now near our 2015 DCF target
price of Bt44.00. Hence, we maintain a rating of Underperform on the counter.
Risks
Slower than expected recovery in local purchasing power.
Nat Panassutrakorn
66.2658.8888 Ext.8849
[email protected]
See last page for the important disclosures
November 6, 2014
*The Company may be issuer of Derivative Warrants on these securities.
http://research.kgi.com; Bloomberg: KGIT <GO>
Please see back page for disclaimer
1
Thailand
Siam Makro
Figure 1: 3Q14 earnings of Bt1.08bn, up 5.7% YoY and 2.9% QoQ
Bt mn
Sales
COGS
Gross profit
SG&A
Operating profit
EBIT
Income tax expense
Net profit
Percent
Gross margin
SG&A/sales
Effective tax rate
3Q14
33,110
30,114
2,996
2,375
620
1,448
319
1,083
3Q14
9.0
7.2
22.8
3Q13
30,423
27,787
2,636
2,149
487
1,309
271
1,024
3Q13
8.7
7.1
20.9
YoY (%)
8.8
8.4
13.7
10.5
27.5
10.6
18.0
5.7
YoY (ppts)
0.4
0.1
1.9
2Q14
34,135
31,322
2,813
2,248
565
1,368
282
1,052
2Q14
8.2
6.6
21.1
QoQ (%)
Comment
(3.0) Underpinned by ongoing expansion plan
(3.9)
6.5
5.7
9.7
5.8
13.4
2.9 Slightly off from Bloomberg Consensus at Bt1.1bn
QoQ (ppts)
0.8 Good product mix
0.6
1.7
Source: Company data, KGI Research estimates
November 6, 2014
*The Company may be issuer of Derivative Warrants on these securities.
http://research.kgi.com; Bloomberg: KGIT <GO>
Please see back page for disclaimer
2
Thailand
Siam Makro
Figure 2: Company profile
Figure 3: SSSG remains in the good position
Siam Makro (MAKRO) was established in May 1988 and its shares were
SSSG & total sales growth, percent
listed on SET in August 1994 with total registered share capital of
4,800mn shares. It has a par value of Bt0.5. As of the end of 1Q14, there
16.0
11.5
12.0
10.0
8.4
were 71 Makro stores of varying sizes. Each store is ideally positioned
geographically to be easily accessible by all of its customers and offers a
product range and assortment designed specifically for their members’
8.0
7.1
6.3
9.1
8.5
7.1
6.9
4.0
8.6
8.2
7.5
7.5
5.6
needs.
0.0
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14
SSSG
Source: Company data; KGI Research
Source: Company data; KGI Research
Figure 4: Aggressive expansion plan
Figure 5: Provincial market is a key to growth
Total stores, stores
Breakdown store by location, stores
13
12
3
4
5
7
41
44
48
52
57
64
41
2007
2008
2009
2010
2011
2012
2013
0
29
2006
0
4
Existing stores
10
77
87
33
21
2014F
2015F
43
39
35
33
48
69
62
55
8
8
8
9
9
9
9
9
9
9
2006
2007
2008
2009
2010
2011
2012
2013
2014F
2015F
New stores
Greater Bangkok stores
Provincial stores
Source: Company data; KGI Research
Source: Company data; KGI Research
Figure 6: Dry food dominates in sales proportion
Figure 7: Earnings are on the rise
Breakdown sale by product, percent
Sales, Bt bn (LHS); net profit, Bt mn (RHS)
200
Fresh food
8
160
6
120
24.8
4
80
63.8
Dry food
2
40
11.4
-
0
2011
Non-food
2012
2013
Sales
2015F
Net Profit
Source: Company data; KGI Research
Source: Company data; KGI Research
Figure 8: Company trading PBV
Figure 9: Company trading PER
PBV, times
PER, times
50.0
20.0
+2.0 sd = 15.7x
+1.0 sd = 10.9x
10.0
+1.0 sd = 29.9x
30.0
Average = 20.6x
Average = 6.2x
5.0
+2.0 sd = 39.3x
40.0
15.0
20.0
-1.0 sd = 1.4x
10.0
-2.0 sd = -3.4x
0.0
-1.0 sd = 11.2x
Source: Company data; KGI Research
November 6, 2014
2015F
2014F
2013
2012
2011
2010
2009
2008
-10.0
2007
2015F
2014F
2013
2012
2011
2010
2008
2007
2009
-2.0 sd = 1.9x
0.0
-5.0
2014F
Source: Company data; KGI Research
*The Company may be issuer of Derivative Warrants on these securities.
http://research.kgi.com; Bloomberg: KGIT <GO>
Please see back page for disclaimer
3
Thailand
Siam Makro
Quarterly Income Statement
Mar-12A
Jun-12A
Sep-12A
Dec-12A
M ar-13A
Jun-13A
Sep-13A
Dec-13A
Mar-14A
Jun-14A
Jun-14A
27,266
(25,100)
2,166
(1,698)
687
1,155
281
1,435
(20)
(20)
1,134
(270)
864
0.18
27,310
(25,138)
2,172
(1,771)
641
1,042
296
1,338
(22)
(22)
1,020
(252)
769
0.16
27,050
(24,772)
2,278
(1,941)
722
1,059
303
1,362
(22)
(22)
1,037
(277)
760
0.16
30,514
(27,750)
2,764
(2,009)
766
1,521
824
2,345
(21)
(21)
1,500
(337)
1,163
0.24
30,711
(28,087)
2,625
(2,055)
757
1,327
318
1,645
(20)
(20)
1,307
(297)
1,010
0.21
30,876
(28,224)
2,653
(2,121)
710
1,242
336
1,578
(27)
(27)
1,215
(256)
959
0.20
30,423
(27,787)
2,636
(2,149)
822
1,309
349
1,658
(14)
(14)
1,295
(271)
1,024
0.21
34,627
(31,575)
3,051
(2,273)
854
1,632
330
1,962
(24)
(24)
1,608
(303)
1,305
0.27
34,554
(31,463)
3,090
(2,257)
817
1,651
330
1,980
(31)
(31)
1,620
(349)
1,271
0.26
34,135
(31,322)
2,813
(2,248)
803
1,368
340
1,708
(35)
(35)
1,333
(282)
1,052
0.22
33,110
(30,114)
2,996
(2,375)
827
1,448
373
1,821
(46)
(46)
1,402
(319)
1,083
0.23
Income Statement (Bt mn)
Revenue
Cost of Goods Sold
Gross Profit
Operating Expenses
Other incomes
Operating Profit
Depreciation of fixed assets
Operating EBITDA
Non-Operating Income
Interest Income
Other Non-op Income
Non-Operating Expenses
Interest Expense
Other Non-op Expenses
Net Investment Income/(Loss)
Pre-tax Profit
Current taxation
Minorities
Extraordinary items
Net Profit
EPS (Bt)
Margins (%)
Gross profit margin
Operating margin
Operating EBITDA margin
Net profit margin
Growth (%)
Revenue growth
Operating growth
Operating EBITDA growth
Net profit growth
7.9
4.2
5.3
3.2
8.0
3.8
4.9
2.8
8.4
3.9
5.0
2.8
9.1
5.0
7.7
3.8
8.5
4.3
5.4
3.3
8.6
4.0
5.1
3.1
8.7
4.3
5.4
3.4
8.8
4.7
5.7
3.8
8.9
4.8
5.7
3.7
8.2
4.0
5.0
3.1
9.0
4.4
5.5
3.3
17.8
13.3
14.3
26.1
17.8
26.0
25.5
34.2
14.3
5.3
7.6
13.6
12.4
38.1
70.3
71.7
13
15
15
17
13
19
18
25
12
24
22
35
13
7
(16)
12
12.5
24.4
20.4
25.8
10.6
10.2
8.3
9.6
8.8
10.6
9.8
5.7
Source: KGI Research
KGI Locations
China
Shanghai
Room 1907-1909， Tower A, No. 100 Zunyi Road,
Shenzhen
Room 24D1, 24/F, A Unit, Zhen Ye Building, 2014 Bao’annan Road,
Shanghai, PRC 200051
Shenzhen, PRC 518008
Taiwan
Taipei
700 Mingshui Road, Taipei, Taiwan
Telephone 886.2.2181.8888 ‧ Facsimile 886.2.8501.1691
Hong Kong
41/F Central Plaza, 18 Harbour Road, Wanchai, Hong Kong
Telephone 852.2878.6888 Facsimile 852.2878.6800
Thailand
Bangkok
8th - 11th floors, Asia Centre Building
173 South Sathorn Road, Bangkok 10120, Thailand
Telephone 66.2658.8888 Facsimile 66.2658.8014
KGI's Ratings
Rating
Definition
Outperform (OP)
The stock's excess return* over the next twelve months is ranked in the top 40% of KGI's coverage
universe in the related market (e.g. Taiwan).
Neutral (N)
The stock's excess return* over the next twelve months is ranked in the range between the top
40% and the bottom 40% of KGI's coverage universe in the related market (e.g. Taiwan).1.3
Under perform (U)
The stock's excess return* over the next twelve months is ranked in the bottom 40% of KGI's
coverage universe in the related market (e.g. Taiwan).
Not Rated (NR)
The stock is not rated by KGI Securities.
Restricted (R)
KGI policy and/or applicable law regulations preclude certain types of communications, including an
investment recommendation, during the course of KGI's engagement in an investment banking
transaction and in certain other circumstances.
Excess return = 12M target price/current price-
s
Note
Disclaimer
November 6, 2014
When an analyst publishes a new report on a covered stock, we rank the stock's excess return with
those of other stocks in KGI's coverage universe in the related market. We will assign a rating based
on its ranking. If an analyst does not publish a new report on a covered stock, its rating will not be
changed automatically.
KGI Securities (Thailand) Plc. (“The Company”) disclaims all warranties with regards to all information contained herein. In no event
shall the Company be liable for any direct, indirect or any damages whatsoever resulting from loss of income or profits, arising by
utilization and reliance on the information herein. All information hereunder does not constitute a solicitation to buy or sell any
securities but constitutes our sole judgment as of this date and are subject to change without notice.
*The Company may be issuer of Derivative Warrants on these securities.
http://research.kgi.com; Bloomberg: KGIT <GO>
Please see back page for disclaimer
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