We expect 2Q23F core profit of Bt1.78bn, -4% YoY on higher SG&A/sales and interest expenses and -16% QoQ on seasonality. In 3Q23TD, SSS growth is believed to be close to 2Q23’s low to mid single digits YoY, with sales growth YoY in Thailand and Italy outpacing sales contraction YoY in Vietnam. We expect 3Q23F core earnings to grow YoY from growth in retail sales & rental income and a wider margin but fall QoQ on seasonality. Maintain Outperform with an end-2023 DCF (WACC of 7.1% and LT growth rate at 2.5%) TP of Bt52.
Expect 2Q23F net profit of Bt1.78bn, +20% YoY but -18% QoQ. Without an extra item, core profit is estimated at Bt1.78bn, -4% YoY, with higher SG&A/sales and interest expenses outpacing better sales and gross margin, and -16% QoQ from seasonality. It will release results on August 15.
2Q23F highlights. Retail sales are expected to grow 6% YoY from SSS growth and store expansion. We expect SSS (simple average by unit) to grow 4% YoY (vs +24% YoY in 2Q22 and +13% YoY in 1Q23), still up YoY from economic and tourist recovery in Thailand and Italy but growing more slowly than in 1Q23 from sales contraction in Vietnam, whose economy has slowed. By country, SSS is expected to grow 5% YoY in Thailand and 25% YoY in Italy but contract 8-9% YoY in Vietnam. By segment, SSS is set to grow 10-15% YoY in the fashion unit but fall 2-3% YoY in the food and hardline units, pulled down by the contraction in SSS of 8-9% YoY in both food and hardline units in Vietnam. Rental income is expected to grow over 10% YoY from more leasable space in new malls and better occupancy and rental rates. Gross margin will widen 120bps YoY to 28.4% on a widening in retail gross margin to 26.4% (+100bps YoY) on a more favorable sales mix from growing high-margin fashion sales, and in the rental business to 74.8% (+220bps YoY) from better occupancy and rental rates. SG&A/sales will be 30.2%, +170bps YoY, on rising utilities, more store expansion expenses from more aggressive expansion of Thai Wasadu format, and more expenses from a soon-coming new food format. Interest expense is set to be Bt1bn, +24% YoY but flat QoQ, on higher funding costs.
3Q23F outlook. In 3Q23TD, SSS is believed to be growing close to 2Q23’s in the low to mid single digits YoY, with sales growth YoY in Thailand and Italy outpacing sales contraction YoY in Vietnam. While sales contraction YoY in Vietnam in 3Q23TD seems to have slowed from 2Q23, we will monitor further to see if there is any positive effect on purchasing power after the Vietnamese government announced a reduction in VAT from 10% to 8% starting from July through December sufficient to turn CRC’s SSS in Vietnam to growth YoY. We expect 3Q23F core earnings to grow YoY from growth in retail sales & rental income and a wider margin but fall QoQ on seasonality.
Key risks: Changes in purchasing power and higher costs from inflationary pressure, higher interest rate and the new government’s policies.
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