We expect 1Q24F core profit of Bt2.2bn,flat YoY on lower gross margin and higher interest expenses balancing with higher sales and lower SG&A/sales but -19% QoQ on seasonality. We cut our 2024F by 8%, reducing our SSS and margin assumptions. With moderate sales growth (store expansion and 1-2% YoY SSS contraction in April, led by Thailand and Vietnam), stable gross margin off last year’s normal base and high SG&A/sales in low season, we expect 2Q24F core earnings to be stable YoY but slip seasonally QoQ. We downgrade our 3-month tactical rating to NEUTRAL with a new end-2024 DCF (WACC of 7.1% and LT growth rate at 2.5%) TP of Bt40 (from Bt44).
Expect 1Q24F net profit of Bt2.2bn, flat YoY but -30% QoQ. Without an extra item (FX loss of Bt51mn in 1Q23 and FX and tax gains of Bt407mn in 4Q23), we estimate core profit at Bt2.2bn, flat YoY as lower gross margin and higher interest expenses will offset higher sales and lower SG&A/sales but seasonally -19% QoQ.
1Q24F highlights.Retail sales are expected to grow 5% YoY from store expansion and SSS growth. We expect SSS (simple average by unit) to grow 0.7% YoY (vs
-3% YoY in 4Q23), on: 1) SSS growth in Italy (7% of sales) at 7% YoY (vs 9% YoY in 4Q23), growth slowing off last year’s normal base; 2) SSS growth in Vietnam (22% of sales) of 1.5% YoY (vs -16% YoY in 4Q23), turning up from better SSS in the food unit of 5% YoY (vs -9% YoY in 4Q23) amid continued weak SSS in the hardline unit at -20% YoY (vs -33% YoY in 4Q23); 3) SSS in Thailand (71% of sales) stable YoY (vs -1% YoY in 4Q23), with weaker purchasing power in late 1Q24 balanced by more sales from E-Receipt stimulus in early 1Q24. Rental income is set to grow 5% YoY from better occupancy and rental rates. Gross margin is expected to decline 10bps YoY (first drop YoY over the past nine quarters) to 27.7% on: 1) a narrower retail gross margin (-10bps YoY) on a less favorable sales mix from higher low-margin food sales in Vietnam and a new food format in Thailand and last year’s normal fashion margin; 2) stable gross margin YoY in the rental business. SG&A/sales will fall 10bps YoY to 28.6% as more store expansion expenses will be offset by lower utility expenses and higher sales. Interest expense is estimated at Bt1.3bn, +23% YoY, on higher funding costs.
Earnings revision & outlook. We cut our 2024F by 8% on lower SSS and margin assumptions. In the first three weeks in April, we believe SSS fell 1-2% YoY, hit by an SSS contraction of 1-2% YoY in Thailand and Vietnam (1-3% YoY drop in the food unit and >20% YoY drop in the hardline unit) amid SSS growth of 7-9% YoY in Italy. With moderate sales growth (store expansion and weaker SSS), a stable gross margin off last year’s normal base and high SG&A/sales during low season, we expect stable 2Q24F core earnings YoY but a fall QoQ on seasonality. We estimate linkage to the digital wallet scheme at 12% of CRC’s sales (2% sales from small food stores and 15% B2B sales from all units in Thailand and 71% sales from Thailand). Implementation in 4Q24F would give earnings upside to that quarter.
Key risks are changes in purchasing power and tourists, and new government policies. Key ESG risks are energy management, sustainable products with quality management (E), labor practices and data security (S). | 
