CP ALL PCL: Q3 2024 Financial Analysis and Future Outlook

Broker Name: UOB Kay Hian

Date of Report: Thursday, 14 November 2024

Company Overview

CP ALL PCL (CPALL) operates Thai 7-Eleven stores, controlling more than 50% of the convenience store market in Thailand. With a significant presence in the consumer staples sector, CPALL has demonstrated robust performance and market dominance.

Q3 2024 Financial Performance

CPALL reported stronger-than-expected earnings for Q3 2024. The company achieved core earnings of Bt6.2 billion, marking a 52% year-on-year (yoy) increase, though flat compared to the previous quarter (qoq). The key drivers for this performance were an improved top-line and gross profit margin.

Key Financial Metrics

Impressive Core Earnings Momentum

CPALL’s 3Q24 net profit of Bt5.6 billion represents a 26.8% yoy increase, although it reflects a 10.1% decline qoq. Excluding one-off items from CPAXTRA and forex loss, the core profit was Bt6.19 billion, up 51.8% yoy and flat qoq. The earnings exceeded market and analyst expectations by 9%.

Key Drivers of 3Q24 Performance

• Top-line Growth: Sales increased by 6.4% yoy due to positive same-store-sales (SSS) growth for CPALL (3.3% yoy), Makro wholesales (1.5% yoy), and Lotus hypermarkets (2.3% yoy). Additional sales from new stores also contributed to the top-line growth.
• Gross Margin Improvement: The gross margin improved to 22.7% in 3Q24 from 21.8% in 3Q23, driven by higher sales of high-margin products such as ready-to-eat (RTE) items and lower cigarette sales.
• SGA-to-Sales Increase: The SGA-to-sales ratio increased slightly to 20.8% in 3Q24 from 20.2% in 3Q23, primarily due to amalgamation expenses from CPAXTRA and accounting differences in stamp payment recognition.

Future Outlook and Earnings Growth

CPALL is expected to maintain strong earnings growth momentum in 2024, supported by continued positive SSS growth across all store formats. The company anticipates higher contributions from food products, which accounted for 75.9% of 9M24 7-Eleven convenience store sales, up from 75.1% in 9M23. CPALL projects 2024 earnings of Bt24.7 billion, a 33% yoy increase, with further growth of 11% yoy to Bt27.4 billion in 2025.

Earnings Revision and Risks

CPALL’s 2024-25 net profit estimates have been revised upwards by 3.3% and 3.2%, respectively. This revision reflects improvements in top-line profitability due to strong operational momentum.

Valuation and Recommendation

UOB Kay Hian maintains a “BUY” recommendation for CPALL with a target price of Bt85.00. The target price is pegged to 28.9x 2025F PE, consistent with CPALL’s five-year mean from 2017-19 and 2023-24, excluding the COVID-19 pandemic period (2020-22). The positive outlook for 2024-25 earnings and long-term business prospects supports this recommendation.

Share Price Catalysts

• Strong gross margin improvement in 2024
• Reduction in SGA-to-sales due to lower electricity costs
• Government stimulus packages in 2024-25

Environmental, Social, and Governance (ESG) Initiatives

Environmental

• CPALL aims to achieve carbon neutrality by 2030 and become a net-zero GHG emissions company by 2050.
• Focus on sustainable packaging and food waste management.

Social

• CPALL supports societal development through projects like SME support and introducing new health and nutrition products.

Governance

• CPALL is certified for renewed membership from Thailand’s Private Sector Collective Action Coalition against Corruption (CAC) for 2023-26.

Conclusion

In summary, CPALL’s impressive Q3 2024 financial performance, driven by strong top-line growth and improved gross margins, positions the company for continued success. With a positive earnings outlook for 2024-25, strategic ESG initiatives, and a robust market presence, CPALL remains a compelling investment opportunity.