We expect CPALL to report the sector’s best 2Q23F earnings growth YoY, with core profit of Bt4bn, +32% YoY on strong revival in CVS sales and margin and better contribution from CPAXT, but flat QoQ. Earnings will strengthen further in 2H23F, up YoY and HoH, from a continued robust CVS unit and better CPAXT operations (lower interest expenses after completion of debt refinancing in April). CPALL has outperformed the SET by 4% over the past month and we expect it to continue to do so, boosted by strong 2Q23F and 2H23F earnings momentum. Maintain Outperform with an end-2023 DCF TP of Bt78.
Catalyst: The sector’s best 2Q23F earnings growth YoY. We expect 2Q23F net profit of Bt3.9bn, +30% YoY but -5% QoQ. Excluding Bt112mn extra loss from expenses for CPAXT’s early debt repayment (CPALL’s portion) gives core profit of Bt4bn, +32% YoY but flat QoQ. Behind the YoY growth is mainly on the stronger convenience store (CVS) unit and partly on better CPAXT contribution. Growth is stable QoQ as the better CVS unit offsets seasonally softer CPAXT operations. It will release results on August 10.
CVS unit. In 2Q23F, we expect SSS growth of 7% YoY (the sector’s best, with the sector averaging 3% YoY) from revived economic activities, the return of tourists, and higher temperatures than normal. We expect it to open 180 new stores in the quarter, giving it a net 14,227 stores at end-2Q23F (+6% YoY and +1% QoQ). Gross margin will rise YoY on more sales of high-margin personal care and ready-to-eat & drink items brought by the return of tourists and more impulse buying. SG&A/sales is set to be under control with higher electricity and store expansion expenses balanced by higher sales.
CPAXT (60% held by CPALL). We estimate CPAXT’s 2Q23F core profit at Bt1.68bn, +7% YoY on lower consolidated interest expenses (-7% YoY and -12% QoQ) from debt refinancing, but -19% QoQ on seasonality. In 2Q23F, we expect SSS in the B2B unit at +5% YoY and the B2C unit at -1% YoY. Note that food deflation is estimated to erode SSS for both units by 1.5-2.0% YoY, and the reduction in store operating hours by 6 hours/day at night for B2C small formats to improve operational efficiency is expected to erode SSS in the B2C unit by another 1% YoY.
Action & recommendation. The stronger sales in the CVS unit helps limit earnings downside from the slower sales revival in CPAXT. We maintain our 2023F earnings forecast for CPALL at Bt17bn, after raising 2023F SSS growth in the CVS unit to 5.5% (from 4%) to balance the cut in sales growth in CPAXT. We expect its 2H23F earnings to grow more strongly YoY and HoH, boosted by: 1) continued growth at the CVS unit for both sales and margin in tandem with economic and tourist recovery; 2) better contribution from CPAXT from lower interest expenses after the completion of debt refinancing in late April and gradually improving operations. CPALL has outperformed the SET by 4% over the past month and is poised to outperform further, boosted by strong 2Q23F and 2H23F earnings growth momentum. We rate Outperform with an end-2023 DCF TP (WACC at 7.0% and LT growth at 2.5%) of Bt78.
Key risks are changes in purchasing power, an inflation-led rise in costs and higher interest rate, and new government policies.
We expect CPALL to report the sector’s best 2Q23F earnings growth YoY, with core profit of Bt4bn, +32% YoY on strong revival in CVS sales and margin and better contribution from CPAXT, but flat QoQ. Earnings will strengthen further in 2H23F, up YoY and HoH, from a continued robust CVS unit and better CPAXT operations (lower interest expenses after completion of debt refinancing in April). CPALL has outperformed the SET by 4% over the past month and we expect it to continue to do so, boosted by strong 2Q23F and 2H23F earnings momentum. Maintain Outperform with an end-2023 DCF TP of Bt78.
Catalyst: The sector’s best 2Q23F earnings growth YoY. We expect 2Q23F net profit of Bt3.9bn, +30% YoY but -5% QoQ. Excluding Bt112mn extra loss from expenses for CPAXT’s early debt repayment (CPALL’s portion) gives core profit of Bt4bn, +32% YoY but flat QoQ. Behind the YoY growth is mainly on the stronger convenience store (CVS) unit and partly on better CPAXT contribution. Growth is stable QoQ as the better CVS unit offsets seasonally softer CPAXT operations. It will release results on August 10.
CVS unit. In 2Q23F, we expect SSS growth of 7% YoY (the sector’s best, with the sector averaging 3% YoY) from revived economic activities, the return of tourists, and higher temperatures than normal. We expect it to open 180 new stores in the quarter, giving it a net 14,227 stores at end-2Q23F (+6% YoY and +1% QoQ). Gross margin will rise YoY on more sales of high-margin personal care and ready-to-eat & drink items brought by the return of tourists and more impulse buying. SG&A/sales is set to be under control with higher electricity and store expansion expenses balanced by higher sales.
CPAXT (60% held by CPALL). We estimate CPAXT’s 2Q23F core profit at Bt1.68bn, +7% YoY on lower consolidated interest expenses (-7% YoY and -12% QoQ) from debt refinancing, but -19% QoQ on seasonality. In 2Q23F, we expect SSS in the B2B unit at +5% YoY and the B2C unit at -1% YoY. Note that food deflation is estimated to erode SSS for both units by 1.5-2.0% YoY, and the reduction in store operating hours by 6 hours/day at night for B2C small formats to improve operational efficiency is expected to erode SSS in the B2C unit by another 1% YoY.
Action & recommendation. The stronger sales in the CVS unit helps limit earnings downside from the slower sales revival in CPAXT. We maintain our 2023F earnings forecast for CPALL at Bt17bn, after raising 2023F SSS growth in the CVS unit to 5.5% (from 4%) to balance the cut in sales growth in CPAXT. We expect its 2H23F earnings to grow more strongly YoY and HoH, boosted by: 1) continued growth at the CVS unit for both sales and margin in tandem with economic and tourist recovery; 2) better contribution from CPAXT from lower interest expenses after the completion of debt refinancing in late April and gradually improving operations. CPALL has outperformed the SET by 4% over the past month and is poised to outperform further, boosted by strong 2Q23F and 2H23F earnings growth momentum. We rate Outperform with an end-2023 DCF TP (WACC at 7.0% and LT growth at 2.5%) of Bt78.
Key risks are changes in purchasing power, an inflation-led rise in costs and higher interest rate, and new government policies.
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