High Conviction: CPALL - Growth topping the sector in 2H24F

Catalyst #1: 3Q24F SSS growth ahead of peers. In 3Q24, we estimate YoY SSS growth at the CVS unit at 3% and at CPAXT at 2% in the B2B & B2C units, far ahead of other retailers, whose SSS is down 1% YoY on average. At the CVS unit, SSS will be driven by more tourists, more impulse buying, a satisfactory response to this year’s stamp campaign running August 24 to November 23 (customers can use stamps from their first purchase to discount their next purchase or can collect the stamps to exchange for “Doraemon” cartoon character products later). At CPAXT, we expect SSS to grow to 2-5% YoY in September (vs 2% YoY in 3Q24), partly on the Bt10,000 cash handout to 14.5mn vulnerable persons that began Sep 25, with revived sales for non-food products amid solid sales growth for food products, better sales in the big store formats and upcountry.

Catalyst #2: Sector’s best earnings growth YoY in 3Q24F. We expect CPALL to report a 3Q24F core profit of Bt6bn, +39% YoY but -3% QoQ, the sector’s best YoY growth based on the following factors. First, CVS sales will be raised via SSS growth and store expansion (+150 stores to 15,000 stores, +4% YoY and +1% QoQ). Second, CVS gross margin will reflect product mix, at 27.5%, up 50bps YoY on higher sales of high-margin personal care and ready-to-eat items on more tourists and more impulse buying and a drop in low-margin cigarette sales but down 20bps QoQ on seasonality. Third, CVS SG&A/sales will be under control, with lower electricity expenses and the rise in other expenses in the slower pace than the rise in sales. Lastly, earnings contribution from CPAXT will be higher, with 3Q24F core profit of Bt2.1bn, +24% YoY from better sales and EBIT margin (wider gross margin, +20-40bps at the B2B & B2C units with more high-margin sales, and lower SG&A/sales) but seasonally -3% QoQ.

Catalyst #3: Earnings upside from stimulus and rate cut. We have not yet included in our forecast the upside from stimulus - either the Bt10,000 cash paid to 14.5mn citizens starting on Sep 25 or the Bt10,000 planned for the remaining 30mn citizens as a digital wallet, for which details and timeline have not yet been concluded, or the cut in interest rate. For the stimulus, we estimate each 1% rise in SSS growth in the CVS unit and in CPAXT will grow CPALL’s earnings by 0.7% and 0.4%. As for the interest rate cut, we estimate each 25bps cut in interest rate will add 0.7% to CPALL’s earnings. Note that the INVX economist expects the BoT to cut policy rate by 100bps over the next twelve months (starting with a 50bps cut in 4Q24 and another 50bps cut in 1H25). If so, this gives 3% upside to CPALL’s earnings.

Key risks are changes in government policies and purchasing power. Key ESG risks are energy & waste management, sustainable products (E) and product quality management, labor practices and data privacy (S).