Big C Supercenter

Q4 2012 results far below estimate

Big C Supercenter Plc (BIGC)

18% below our estimate

BIGC reported a 4Q12 net profit of Bt1.88bn, down 22% YoY but up 82% QoQ. The sharp YoY decline was due to the absence of insurance income (Bt457m was booked in 4Q11), while the QoQ rise was because of seasonality. The result was 18% below our estimate, as GM and other income were lower than expected.

Results highlights

Sales rose by 18% YoY and 12% QoQ to Bt30.5bn in 4Q12, led by a 12.1percent surge in SSSG and the firm's expansion program. The surge in SSSG, which pushed FY12 SSSG to 5.3%, resulted from good shopping sentiment, effective marketing campaigns and the low base set by 4Q11 flooding. The launches of hard marketing campaigns, however, squeezed gross margin by 150 bps YoY to 15.25% in 4Q12.

Rental income increased by 20% YoY and 3.5% QoQ to Bt2.1bn, thanks to a higher rental rate and the expansion of rentable area through both new store openings and the reformatting of outlets.

During 4Q12, BIGC opened one hypermarket (ahead of its initial opening plan of 1Q13), one BigC market, 36 Mini BigCs, seven Pure drugstores and closed one unprofitable BigC market (rebranded from a Carrefour). As a result, the firm had 113 Hypermarkets, 18 Big C Markets, 126 Mini Big Cs, and 91 Pure drug stores at YE12.

The SGA/revenue ratio was well-controlled at 14.6%, down by 32 bps YoY and 137 bps QoQ. In our view, the improved SGA/revenue ratio and squeezed GM imply that the firm used a pricing strategy to draw customers rather than building loyalty through store ambience and services.

Outlook

BIGC looks set to remain in slow growth mode in 1H13, due to its large earnings base and because we anticipate that its aggressive rollout will have only a minimal impact during its initial phase. GM will remain under pressure from intense price competition with Tesco, particularly during Chinese New Year.

What's changed?

We have cut our GM assumptions for FY13-15 by 34 bps in order to calibrate with the actual trend. As a result, our FY13-15 earnings forecasts fall by 9%, 8% and 8%, respectively. Our YE13 target price declines to Bt220 from Bt232.

Recommendation

Our HOLD rating stands on BIGC. There would probably be scope for a rating upgrade if the firm were to spin off some of its stores to an REIT. In the prevailing environment of good shopping sentiment and rising purchasing power, we prefer discretionary names, such as HMPRO and ROBINS.

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