CP ALL: 1Q25 Results Analysis: Strong 1Q25 underscores defensive appeal
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- 1Q25 core profit of THB7.6bn (+26% y//y) was ahead of our and market expectations
- Strong performance driven by 7-Eleven’s 3% SSSG, store expansion and margin improvement
- Despite more challenges seen QTD, we expect a defensive showing with growth in 2Q25F
- Maintain BUY with unchanged DCF-based of THB69.00
Earnings review
1Q25 results showed robust growth. CPALL reported 1Q25 net profit of THB7.59bn (+20% y/y, +6% q/q). Stripping out extra items from fx gains, core profit was at THB7.56bn (+26% y/y, +8% q/q), beating our estimates and consensus by 13% and 10%, respectively. The key deviation to our estimates was the lower-than-expected SG&A expenses at CVS business (7-Eleven). The solid growth y/y was mostly boosted by CVS while CPAXT posted less exciting profit growth of 7% y/y in the quarter.
At the consolidated level, overall core margin was 3.1% in 1Q25 (+50bps y/y) mainly on gross margin expansion (+50bps y/y) driven by improving gross margins across all businesses and a higher contribution from CVS given faster topline growth (which typically yields higher gross margin).
Excluding profit contribution from CPAXT, CVS’s standalone net profit was THB6.0bn (+24% y/y, +25% q/q) in 1Q25. On a y/y basis, the performance was supported by the decent revenue growth and expanding gross margins.
CVS: 1Q25 highlights
SSSG remained resilient in 1Q25. CVS’s revenue increased 8% y/y on the back of solid SSSG of 3% and store expansion (+4.8% y/y). CVS’s SSSG of 3% remained the most resilient among major Thai listed retailers given its pole position. In 1Q25, store traffic per day inched down 0.9% due to the early rain this year while the SSSG was mainly driven by higher ticket size of THB88 (+3.5% y/y).
We note that 7-Eleven same store sales accounted for 104% of the level in 1Q19 while ticket size surpassed 1Q19 level by 28% and store traffic stood at only 80% of pre Covid level. In 1Q25, CPALL opened 185 7-Eleven stores, operating 15,430 stores as of 1Q25, on track to achieve its full-year forecast of opening 700 stores in 2025.
Healthy gross margin maintained. CVS’s gross margin was 29.4% in 1Q25, an improvement of 30bps q/q from 4Q24 and a higher 70bps y/y. The y/y margin expansion was supported by a better product mix and strong demand for ready-to-eat meals (accounted for 29%-30% of total sales) as well as personal care and healthcare products which yield higher margins.
Meanwhile, we still saw lower demand for cigarettes which yield lower margins. We also noted lower demand for beverages after the prolonged cold weather. SG&A expenses to sales also declined 30bps y/y given better efficiency, lower electricity costs (from unit price and lower usage from cold weather) and higher sales leverage. In 1Q25, other income to sales was at 5.8%, inching down 10bps y/y.
CPAXT: 1Q25 highlights
1Q25 core profit growth was less exciting. CPAXT posted 1Q25 net profit of THB2.64bn (+7% y/y, -33% q/q). The softer q/q performance was due to seasonality. On y/y basis, the earnings growth y/y was supported by mild sales growth and small improvement on operating profits. In 1Q25, CPAXT shared that the SSSGs for wholesale and retail was at 1.0% and 0.5%, respectively, impacted by lower big lot sales under the wholesale business along with economic uncertainties and attempts to optimise product offerings at retail business during 1Q25.
CPAXT’s consolidated GPM showed strong improvement of 40bps y/y due to an accounting reclassification and synergy benefits. However, gross margin at Lotus’s was stable given the promotions held to boost sales. SG&A to sales started to inch down y/y/ due to well-controlled expenses, synergy benefits and profitable omnichannel sales despite the accounting reclassification. Management noted that in 1Q25 the company already recorded synergy benefits of THB575mn, benefitting gross margins and lowering SG&A expenses (or c.23% of FY25F target of THB2.5bn).
Outlook
More challenges QTD but still defensive. Given rising global uncertainties and a drop in inbound tourists, we expect SSSGs across all business to be soften compared to 1Q25 but mostly remain in positive territory for the full-quarter’s performance. Nonetheless, we believe the sales should continue to grow faster together with a boost from store expansion for CVS and CPAXT level. Operating margin should continue to expand y/y led by improving gross margin from better product mix and efficiencies as well as potential further decrease in electricity costs per unit.
Announcement of share repurchase program. On 13 May, CPALL’s BOD approved the company’s share repurchase programme with a maximum amount of THB7.5bn and 150mn shares (or 1.67% of paid-up shares) to be repurchased for financial management purposes including managing excess liquidity, enhancing ROE and building confidence among investors. The success and of share repurchase program and capital reduction would lead to EPS upside of 1.7%.
The duration of the programme remains unchanged, from 16 May 2025 to 14 November 2025 (6-month period). Sources of funding comprise cash from operations and dividends and loan repayments from subsidiary. As of 31 March 2025, CPALL’s cash balance was THB27.7bn and the company expects to generate net operating cash flows during the first 6 months of 2025 which will provide sufficient liquidity to repay liabilities due within 6 months from the date of share repurchase commencement and sufficient cash to be used in the share repurchase program.
Recommendation
Reiterate BUY with unchanged DCF-based TP of THB69.00. We have maintained our earnings forecast for FY25F as 1Q25 results accounted for 26% of our full-year estimate. In 2025, we estimate SSSG of CVS to be 3%, and 2% for Makro and Lotus’s. Gross margin is expected to further improve by 20bps-25bps across all business units. Net-net, we expect core profit growth of 14% in FY25F. The stock is trading at an attractive valuation at -1.4SD of its five-year historical average. We maintain BUY on CPALL for its continued strong earnings momentum and defensive appeal.
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