3Q24 net profit was Bt364mn, -31% YoY and -53% QoQ, missing estimates on FX loss and lower-than-expected gross margin on steel products. This miss led us to cut our 2024F by 3%. In Oct to date, SSS is improving to where we expect it to be stable YoY, ending the two years of contraction, with construction material retailers showing the best SSS improvement QoQ in the sector thus far, backed by the Bt10,000 cash handout to 14.5mn people in late Sep, higher demand for renovations and repair after the flooding and greater government budget disbursement. With better SSS, a wider margin from a gradual rise in steel prices in 4Q24TD amid continued expansion, we expect 4Q24F earnings to rise QoQ and to be at least stable YoY. We maintain Outperform with a mid-2025 DCF TP of Bt18.5 (WACC 7%, LT growth 2.5%).
GLOBAL - 3Q24: Misses estimates on FX & margin
3Q24 net profit Bt364mn, -31% YoY and -53% QoQ, 27% below market estimates and 22% below our estimate off a Bt17mn FX loss and a lower gross margin from lower steel prices. The drop YoY reflects lower sales from SSS contraction and higher SG&A/sales amid a stable gross margin. The drop QoQ is seasonal.
3Q24 highlights. Revenue fell 2% YoY to Bt7.2bn as SSS contraction outpaced store expansion. In 3Q24, SSS shrank 6.5% YoY (vs -12.3% YoY in 3Q23 and -2.3% YoY in 2Q24) hit by weak sentiment and traffic disruption caused by heavy rains and flooding in some areas, outstripping the improved SSS in the last week of September after the government handed out Bt10,000 cash to 14.5mn people. In addition, steel product prices have declined. Based on MOC, local rebar and light lip channel steel prices fell 4-6% YoY and 4% QoQ in 3Q24 (steel accounted for 15% of sales). In 3Q24, it did not open a new store, giving it 89 stores (+9% YoY and flat QoQ, consisting of 87 stores in Thailand and 2 stores in Cambodia) at end-3Q24. Gross margin was 25.9%, flat YoY but -70bps QoQ. The drop QoQ reflected a lower margin on steel products in tandem with lower steel prices (estimated adverse effect of 80bps QoQ, based on margin on steel products at 7% vs 10-11% normally and 12-13% in 2Q24 from higher prices) outpacing more high-margin private brand sales at 24% to sales (vs 23.8% in 3Q23 and 23.5% in 2Q24). SG&A/sales jumped 270bps YoY to 21.7% off a rise in SG&A (+12% YoY) from Bt17mn FX loss and expenses from ramping up expansion. Equity income rose to Bt79mn (+80% YoY, +30% QoQ) on better earnings at existing stores in Myanmar with stable earnings from stores in Laos and Indonesia.
Earnings revision & outlook. We cut our 2024F by 3%, factoring in lower gross margin and higher SG&A in 3Q24. In Oct to date, we expect SSS to be relatively stable YoY, turning around from a contraction for the past two years, boosted by: 1) Bt10,000 cash handout to 14.5mn people in late Sep, notably in the northeast and northern regions; 2) more demand for renovations and repair in flood-affected areas; and 3) more government budget disbursement off last year’s low base (+157% YoY in Oct to date). With steel prices improving by at least low single digits MoM in Oct to date, gross margin on steel products is expected to have hit bottom in 3Q24. Better SSS and margin, together with three new stores planned in 4Q24F, will lift 4Q24F earnings to growth QoQ and be at least stable YoY.
Key risks are changes in purchasing power, in steel prices and farm income, and new government policies. Key ESG risks are energy & waste management, sustainable products (E) and product quality management, labor practices and data privacy (S).