Phillip Internet Stock Broker Recommends Buy CPALL

CP All – CPALL - BUY

Target price : Bt16.60
Recommendation : BUY
Closing Price (13 May 09) : Bt13.80

1Q09 profit above forecast
- CPALL achieved a net profit of Bt1,247m in 1Q09, up 14.98% YoY and 144.8% QoQ.
- Gross margin improved sequentially and beat our forecast.


- We raise our 2009 net profit outlook for CPALL by 9.6% to Bt4,398m.
- We also lift our 2009 price target to Bt16.6/share. The new target offers 20.3% upside from the current trading levels. We keep a BUY opinion on CPALL.

1Q09 net profit of Bt1,247m, up 14.98% YoY and 144.8% QoQ
CPALL, Thailand's largest convenience store chain generated sales and service revenue of Bt25,917m in 1Q09, down 17.6% YoY and 9.9% QoQ due to the de-consolidation of Lotus Shanghai supermarkets in China. In this quarter, other income dropped 3.6% YoY and 5.8% QoQ to Bt1,359m. CPALL posted a net profit of Bt1,247m or Bt0.28 a share in 1Q09, up 14.98% YoY and 144.8% QoQ. The results came in 24.4% and 23.7% better than our forecast of Bt1,002m and an average market estimate of Bt1,008m respectively.

Gross margin improves sequentially, beating forecasts
The much better-than-expected results were credited to: (i) a sequential improvement in gross margin, up 3.1% YoY and 1.44% QoQ to 26.19% above our forecast of 25.27%; and (ii) a fall of 10.2% YoY and 17.3% QoQ in SG&A expenses to Bt6,424m, accounting for 24.79% of sales, below our forecast of 25.26%.

2009 net profit outlook raised by 9.6% to Bt4,398m
First-quarter net profit accounted for 31.1% of our full-year forecast of Bt4,014m. The figure was relatively high as our margin and expense forecasts were relatively conservative. We therefore revise our forecast for SG&A expenses to sales ratio downward by 0.47% to 25.4% from a previous estimate of 25.87% and raise our gross margin estimate by 0.08% to 25.87% from a previous estimate of 25.79%. The revisions prompt us to revise our 2009 net profit forecast upward by 9.6% to Bt4,398m, or Bt0.9789 a share. Our new estimates for margins and SG&A expenses to sales ratio are still below the figures in 1Q09.

2009 price target lifted to Bt16.6/share with 20.3% upside from current levels; BUY rating maintained
We raise our 2009 price target for CPALL to Bt16.6/share from a previous price estimate of Bt13.50/share. We keep a BUY opinion on CPALL. The price target upgrade reflects: (i) a 9.6% increase in our 2009 profit forecast and (ii) an increase in target P/E from 15x to 17x, above the sector's average of 14.45x, reflecting strong profit growth outlook for 2009. We expect 2009 profit to grow by 33.23% on a consolidated basis and 17.6% on an unconsolidated basis, translating into cheap PEG ratios of 0.51x and 0.97x respectively.

By Phillip Securities (Thailand) Plc. on May 14, 2009


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