CPALL – 2H24F earnings looking strong

Its 2H24F growth is expected to beat peers YoY, backed by solid growth from sales and margin improvement at both CVS and CPAXT. To date in 3Q24, its SSS at CVS and CPAXT is outperforming peers. The new government will send its version of the welfare card and digital wallet schemes to Cabinet for approval on September 17. This version carries no spending limit on product or store type or locations. The target payment timeline will run from Sep 2024 through 2025. This plus the expected cut in market interest rate adds upside to earnings. CPALL is now trading at a compelling level of 25x 2024PE (-2S.D. over its 10-year PE). We maintain Outperform with an end-2024 DCF TP (WACC 7%, LT growth 2.5%) of Bt77.

Solid 2H24F earnings. In 3Q24TD, SSS growth at the convenience store (CVS) unit (+2.5-3% YoY) and CPAXT (+2-3% YoY in the B2B & B2C units) is outdoing peers and we expect this to give it better YoY growth than peers in 3Q24F (though, like peers, earnings will slip QoQ from seasonality). At the CVS, we expect better sales and margin YoY on more tourists, more impulse buying, a satisfactory response to this year’s stamp campaign running August 24 to November 23 (customers can use stamps gained from their first purchase to discount their next purchase or can collect the stamps to exchange for “Doraemon” cartoon character products later), and more high-margin items i.e., RTE and RTD products. At CPAXT, we expect better sales and margin YoY, contributed by both B2B and B2C units. Earnings in 4Q24F will grow both YoY and QoQ to this year’s high.

Upside from new government stimulus. The new government is focusing on ways to boost local consumption. On September 9, newspapers report that Deputy Prime Minister Phumtham Wechayachai said the government is considering first enacting an urgent new measure of a Bt10,000 cash handout for 14.5mn vulnerable persons under the welfare card scheme, budgeted at Bt145bn, hopefully starting on September 20 or within this month, as a part of the digital wallet, where Bt450bn will be budgeted to give Bt10,000 to 50mn Thais. The digital wallet scheme will start with Bt5,000 in either cash or as a digital wallet in 4Q24F, with the other Bt5,000 provided via the digital wallet in 2025F. The conditions are likely to be more flexible than originally envisioned, not placing limits on products and store types or on store locations. The measure will be sent to Cabinet for approval on September 17. The revised conditions, if they are as reported in the press, will benefit all retailers under coverage, including CPALL. Though we have not yet included earnings upside from these measures, a sensitivity analysis shows that each 1% rise in SSS in will boost CPALL’s earnings by 1%.

Upside from lower interest rate. On August 22, CPALL issued new debentures worth Bt13bn (3.44% p.a. cost of funds) to refinance its existing debentures (5% p.a.). The interest cost savings would add Bt160mn to earnings (+1% of annualized earnings); we have not put this in our forecast as yet. For the potential cut in market interest rate over a year, our sensitivity analysis suggests that each 25bps cut in market interest rate would boost CPALL’s annualized earnings by 1%.

Key risks are changes in purchasing power and government policies. Key ESG risks are energy management, sustainable products (E), and labor/employment practices (S).