Key takeaways from analyst meeting
- Upgrade to BUY with unchanged TP of THB26.0 from firmer earnings growth and undervaluation
- Management guided for mid-single-digit sales growth in 2025, driven by new product launches, new market expansion, and recovery of overall demand
- Despite a high GPM base in 2024, BJC still targets to further uplift 2025 by 20-40bps, boosted by all business segments
- Tax-base effects to be normalised in FY25F with downtrend of finance costs
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Sales growth to be a decent mid-single-digit level. During BJC’s analyst meeting, its management noted that they expect total sales to register at the mid-single-digit level in 2025. The Healthcare & Technical segment should deliver the strongest mid- to high-single-digit level sales growth. The consumer segment should register mid-single-digit level sales growth after new product launches and the recovery of international trade.
Meanwhile, Big C sales are also expected to grow low- to mid-single-digit, boosted by positive SSSG (fresh food driven with recovery of non-food sales) and store expansion. In 2025, the company targets to roll out seven big format stores and 200 small format stores (with total capex including renovation of THB10bn-12bn in 2025). Packaging sales are set to achieve low- to mid-single-digit sales growth. Packaging sales should be supported by new customers and attempts to export more to CLMV and new markets such as the Philippines, Indonesia, etc.
BJC’s number of retail stores as of end-2024
Management highlighted that in 2025 the company will also proactively focus on international business on top of domestic operations. The international sales mix for packaging business should further increase from 2024. In addition, the company is also looking for any M&A opportunities in the overseas markets, which could bring synergies to the group. The Vietnam market is estimated to improve this year with the acceleration of GDP and strengthen resumption of local consumption.
For Big C, overseas expansion this year (mostly small formats) would take place in Cambodia and Hong Kong. In Hong Kong, management believes losses should reduce from last year but hover below the breakeven point after ongoing asset rationalisation and new store launches.
Rental income expected to grow to a low-single-digit level despite a higher occupancy rate of 92% target in 2025 vs. 89% in 2024. This is the impacted from 17 store renovations this year. Currently, we assume a more conservative revenue growth of 3% as we still see some economic challenges domestically and globally.
Gross margin to improve further. Management aims to further widen its consolidated gross margin by 20-40bps y/y in 2025 (vs. our assumptions of 10bps) despite the high base – mostly driven by better sale mix, persistently favourable raw material costs, cost savings, better efficiency, and higher leverage of higher sales volume.
Among all segments, the Healthcare & Technical gross margins should expand the most, following a higher mix of healthcare products from strong demand of aesthetic products and medical equipment. Packaging costs should be able to improve following the lower soda ashes and natural glass despite uptrend of aluminium costs (the company fully hedged aluminium prices for 2025).
Consumer gross margin improvement should continue, driven by product mix and favourable key costs such as downtrend pulp prices. Big C gross margin should be improved through better product mix from fresh food, private label, recovery in home-line and Softline products as well as enhancing operation efficiency. Big C’s gross margin is guided to decline 20-30bps y/y.
Note that the company plans to commence the 4th furnace (small electric furnace) in 4Q25 to support the production of more premium glass SKUs. Meanwhile, BJC will be launching the distribution centre in Bang Pu in 3Q25. The operation relocation for big stores will start from August 2025 until early next year – which would improve Big C’s operation efficiency in future. Management does not expect any material additional costs rising from these new operations in 2H25.
Other P/L items should also be positive factors. SG&A-to-sales is targeted to drop 10-20bps y/y in 2025 (vs. 10bps in our forecast). This improvement should be attributed from well-managed promotion offerings, fixed cost leverage, cost saving programmes (including solar installation), etc.
Finances expected to decrease at least THB100mn this year following rate cuts (assuming 25bps cut) as well as debt repayments last year. We note that BJC has floating-rate loan accounting for 10% of its outstanding loan portfolio. Management expected the effective tax rate to range from 20-24% this year (vs. 22% in our forecast). We believe with this development we should see a firm profitability turnaround in 2025.
Outlook
Growth to resume in 2025. We estimate FY25F core profit growth to be 14%, supported by accelerating sales growth from improving consumption with more stimulus measures in 2025, further efficiency enhancement, better product mix and more favourable finance costs – where there should be no tax base impact in 2025. In FY25F, we expect SSSG to be c.2% vs. flattish in 2024. Management guided that Big C’s SSSG was low single digit or 2-3% in 2M25 – we note that the 2M25 SSSG number has some negative impact from the leap year in 2024. Stripping out one day effects, we should see a stronger SSSG level.
Recommendation
Upgrade from HOLD to BUY with unchanged DCF-based TP of THB26.00. We maintain our conservative (vs. management’s guidance) earnings forecast this year. Our TP is based on a DCF-based valuation (WACC of 8.4% and terminal growth rate of 1.75%).
The stock is trading at a 17.4x FY25F P/E, equivalent to -1.5SD of its five-year historical average. We believe the current price has fully priced in soft performance in FY24 and provided a higher upside to our TP while we expect BJC to deliver double-digit growth in FY25F. Thus, we upgrade our call from HOLD to BUY.
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