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BigC Supercenter

Improvement on-track, but fully valued

BigC Supercenter Plc (BigC)

Investment thesis

We have upgraded our FY14 earnings forecast by 2% and raised our YE14

target price to Bt224 from Bt212 to reflect strong 2Q14 results and an

improving margin outlook. But the 6percent share price rally (beating the SET by

5%) since earnings were announced has pushed up the PER to 26x FY14

and 23x FY15, which looks fully valued. The scope for a further profit

forecast upgrade appears limited, as we already assume benefits from

supply chain developments. Our model suggests EBITDA margin of

11.4%, higher than the firm's target of 11.1%. Moreover, we don't think it is

a good idea to take positions on BIGC after the recent rally and ahead of

soft season in 3Q14. Our HOLD rating stands.

SSS turning around to growth in 2H14

Management said that the SSS contraction of 1.2% in 2Q14 was mainly

due to the post-coup curfew in late May to early June. If there were no

curfew, SSS for the quarter would rise, given that SSS still grew in April to

early May. As such, with improving consumer confidence and the NCPO's

policy to stimulate domestic consumption, we expect BIGC's SSS to turn

around to growth in 3Q14 and accelerate further in 4Q14 from the low base

set by 2H13. Stores in Bangkok should continue to outperform upcountry

outlets, thanks to good performances by BigC Extra, which caters to mid to

upper mid-income demographics.

Profitability on the way up

Margin expansion following supply chain developments should buoy

earnings growth in 2H14 and FY15. The full impact of Mini BigC's DC

(opened in late May) should be evident in the numbers for July, by which

time it would have been serving all Mini BigC stores. The cross-docking DC

(to open in August) should improve margin further as it enhances logistics

efficiency and allows more supplier to ship products via DC. The fresh food

DC (which will replace two small DCs in 1Q15) should build economies-ofscale

and expand DC centralization fee revenue from suppliers. BIGC

targets to turning its DC units from cost centers to cost-neutral, but has yet

to offer guidance how much margin will improve and when the target will be

achieved.

Upside to expansion, but only a minimal impact on earnings

The firm is likely to roll out more stores than its target this year. It targets

opening four hypermarkets, eight BigC Markets and 40 Mini BigCs in FY14,

but had already rolled out four hypermarkets, two BigC markets and 37

Mini BigCs in 1H14. However, we think branch expansion this year will

prove only modestly above-target. We don't expect more hypermarkets to

open in 2H14, due to the long construction period involved. If any were to

open any more hypermarkets this year, the store size would probably be

small—comparable to the outlets opened in 2Q14 (~4,000sq.m). We

expect the firm to beat its target only for its Mini BigC rollout, but Mini

BigC's contribution remains small.


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