Siam Makro

Beat our number by a big margin

Siam Makro Plc (MAKRO)

Beat our estimate by 18%

MAKRO reported a 4Q12 net profit of Bt1.16bn, up by 72% YoY and 53% QoQ. Excluding Bt192m in expenses related to flooding (booked in 4Q11), profit growth would still have been strong at 34% YoY. The figure beat our estimate and the consensus by 18%, due to fatter gross margin than expected.

Results highlights

Sales rose by 12% YoY and 13% QoQ to Bt30bn, in line with our estimate. SSSG was 5.6% in 4Q12 and 8.5% in FY12. Although SSSG was slightly short of our estimate, stronger-than-expected sales at new stores closed the gap.

Gross margin posted a record high of 9.21%, up by 57 bps YoY and 67 bps QoQ, driven by a change in the product mix. Note that the sales growth of high-margin fresh food and non-food items (mostly HoReCa products) was much stronger than of low-margin dry food.

The SG&A/sales ratio increased to 6.6% in 4Q12 from 5.8% in 4Q11, due to the minimum wage increase, pre-opening expenses (as a result of more aggressive expansion) and the hiring of food specialists and consultants (mostly expatriates) to expand the food service unit. We aren't concerned about the increase in the ratio, as it will soon pay returns in the form of stronger revenue and margin expansion.

MAKRO announced a final dividend of Bt7.25/share. XD on March 14.

Outlook

Despite another minimum wage increase round, MAKRO should deliver robust earnings growth for 1Q13, thanks to strong YoY margin expansion.

What's changed?

We have upgraded our FY13-15 earnings forecasts by 7% to factor in the stronger-than-expected margin expansion trend. Our YE13 target price rises to Bt550 from Bt512.

Recommendation

Because of its stronger earnings growth profile and more attractive valuation, we have added MAKRO to our top BUY list in the sector. It now has the cheapest FY13 PER of only 24.7x and offers the highest dividend yield (3.4%) of any stock in our Retail coverage.