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CPALL

Positive development on debt refinancing BUY

CPALL Plc

Upcoming debt refinancing could lower cost of funds

Expect 1Q14 net profit at Bt3bn, -5% YoY but +42% QoQ

BUY with unchanged 12-month DCF PT at Bt52


- Debt refinancing progressing. Last year, CPALL took out a one-year US$-

denominated bridging loan with banks of US$5.8bn (Bt180bn) to fund the purchase of

MARKO. All-in cost of funds was ~5% and maturity is in June 2014. Of this, Bt50bn was

replaced by baht debentures in Oct 2013, with average cost of funds at 4.84%. Then this

March, more baht debentures were issued, replacing Bt40bn more, with average cost

of 4.70%. The remaining Bt90bn will be refinanced by long-term bank loans, expected

to be finalized within 1-2 months; it previously said cost of funds on this will be 5-6%.

- Good timing: interest rates are coming down. MLR of four banks has been cut 25

bps over the past few months to 6.75% now - making this a good time to refinance.

We maintain our assumed cost of funds at 5.3% on debt refinancing of Bt180bn: actual

cost of 4.8% on the Bt90bn debenture and estimated cost of 5.8% on the Bt90bn debt

that is now being refinanced. Our sensitivity analysis suggests that each 10 bps fall in

cost of funds below our assumption increases its earnings by 1%.

- Expect 1Q14 profit of Bt3bn, -5% YoY but +42% QoQ. The YoY slip reflects interest

expenses and fees related to the acquisition of MAKRO of ~Bt2bn, outpacing CPALL's

moderate sales growth. Sales growth is underwritten by YoY expansion of 2% in store

numbers and 1percent SSS growth (unusual cold weather hit its beverage sales, 30% of sales,

in early 1Q14). This Bt3bn profit also includes Bt1.2bn from MAKRO (fully consolidated

since 3Q13). The rise QoQ is seasonal, bulked up by lower fees from the acquisition of

MAKRO and the absence of FX loss.

- Maintain BUY with DCF PT at Bt52. ST catalysts are: 1) potentially better-thanexpected

cost of funds on lower interest on the Bt90bn refinancing; 2) stronger SSS

growth from unusually hot weather in 2Q14. We maintain our projected 23% earnings

growth in 2014. More improvement will be seen in 2H14 coming off last year's low base

(which contained expenses related to the acquisition of MAKRO) plus the synergy with

MAKRO that is widening margin.


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