CP ALL: 3Q24 delivered; another promising quarte
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What’s New
Another impressive quarterly growth
Earnings review
Core profit growth in 3Q24 was exceptional. CPALL reported 3Q24 net profit at THB5.61bn (+26.8% y/y, -10.1% q/q). Stripping out the huge forex loss of THB554mn and extra loss at CPAXT level, 3Q24 core profit came in at THB6.2bn (+45.3% y/y, +0.7% q/q), ahead of both our estimate and consensus by 5% and 4%, respectively. The key deviation was mainly the better-than-expected gross margin at both CVS. (7-Eleven) and CPAXT level, and robust strong operating income growth, which grew 16.4% y/y from 7-Eleven’s stamp campaign, which was more popular compared to last year.
The strong profit growth was mostly supported by strong profit at both the 7-Eleven and CPAXT levels, mostly uplifted by healthy operating margin despite normalizing SSSG across all formats. In 3Q24, standalone profit of 7-Eleven (excluding contribution from CPAXT) was THB4.63bn (+29.8% y/y). We also would like to highlight that unlike other listed retailers, for CPALL, we spot the decline in finance costs y/y after CPAXT’s completion of debt refinancing since 2Q23 and CVS’s more favourable recent refinancing costs during 2024. On core profit margin, we see net margin hiked to 2.5% (+70bps y/y) following expanding gross margin and healthy other income.
CVS – 3Q24 highlights
Keeping up the momentum. CVS’s revenue growth was 8.8% y/y in 3Q24, supported by the combination of solid SSSG of 3.3%, store expansion (+4.6% y/y), and accounting reclassification on recognition of stamp-related expenses. The SSSG of 3.3% is the most resilient given its leading position, resilient demand on consumer staple products, and a booster from firm recovery of inbound tourism (as foreign tourists made up c.10% of CVS. sales pre-pandemic).
SSSG was attributed from recovering store traffic, which reached 964/store/day (+0.5% y/y, c.84% of pre pandemic level) while the ticket size remained healthy at THB84 (+1.6% y/y, c.120% of pre-pandemic level). In 3Q24, CPALL rolled out another 199 7-Eleven stores and operated 15,053 stores at end 3Q24 (+4.6% y/y), on track with its full-year forecast to open 700 stores or operate 15,245 stores at end 2024.
Expanding margin persisted. CVS’s gross margin further widened from 27.9% in 3Q23 to 29.1% in 3Q24, boosted by better product mix after strong demand of ready-to-eat products and lower demand over cigarettes. We note that the company reclassified the recognition of stamp-related expenses from sales reduction to SG&A expenses, which led to higher gross margin from different accounting policy.
Nevertheless, stripping out accounting effects, the organic gross margin was at 70bps y/y – in line with product gross margin improvement. Thus, with the accounting impact, SG&A-to-sales increased 50bps y/y despite better sales volume leverage and lower utility costs.
CPAXT – 3Q24 highlights
3Q24 core profit growth accelerated. CPAXT posted a 3Q24 net profit of THB1.95bn (+16.4% y/y, -10.3% q/q). Excluding one-time expenses of THB458mn from the amalgamation of THB200mn (net tax) and a derivative loss of THB258mn, core profit came in at THB2.41bn (+40.4% y/y, +10.8% q/q), driven by sales growth and improving gross margin.
Makro and Lotus’s Thailand delivered SSSGs of 1.5% and 2.4% in 3Q24, respectively, while Lotus’s Malaysia posted SSSG of 1.7%. The positive SSSG was mostly driven by growing fresh food products. Store expansion continued for Makro with three new stores opening in 3Q24. Lotus’s expansion was still on the net closures of 22 stores (mostly Lotus’s Go Fresh).
CPAXT’s consolidated GPM rose 50bps y/y from both Makro and Lotus’s operation while the company has been in efforts to drive better product mix from a focus on fresh food and improved sales in the high-margin dry food segment for both Makro and Lotus’s. This quarter, we also started seeing SG&A expenses of Makro grow at a slower pace compared to sales for the first time. We believe continuous robust omnichannel sales made consolidated SG&A-to-sales flattish y/y.
Outlook
Peak sales season in 4Q24F. We believe all business units under CPALL should deliver their highest quarterly sales in 2024 in 4Q24F given that it’s the peak season of spending. Meanwhile, we expect the economic recovery to also boost local consumption. For CPALL, the company’s sales should bode well with further inbound tourism recovery given certain exposure for 7-Eleven and CPAXT’s HoReCa (Hotel, Restaurants, and Catering) customers.
In addition, we expect the upcoming stimulus measures to also help urge local spending. We note that for the Phase 1 of digital wallet cash handouts was already distributed to 14.2mn of a vulnerable group of people (THB10,000 each) during the late of September 2024. According to CPALL, the company has seen some pickings in its 7-Eleven SSSG in MTD but remain in the low-single-digit range.
We expect operating margin to continue on a y/y basis, mostly driven by better product mix and efficiency enhancement while SG&A expenses should still be in the manageable range in 4Q24F.
Recommendation
Reiterate BUY with unchanged TP of THB83.00. We maintain our earnings forecasts. Our DCF-based TP also remains unchanged with a WACC of 7.9% and terminal growth of 2.5%. The stock is now trading at attractive valuation at -1SD of its five-year historical average. With the upside and persisting strong earnings momentum, we maintain our BUY rating.
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