CPAXT is one of the sector’s key gainers on government stimulus, evidenced in the growth in SSS in Sep of at least in the low single digits YoY from Jul-Aug, partly on the Bt10,000-cash handout to 14.5mn vulnerable persons that began Sep 25. We have not yet included the stimulus boost in our 4Q24F and 2025F. With 3Q24 showing better SSS growth than peers, we expect 3Q24F earnings to grow YoY on better sales and margin, then rise to the year’s best in 4Q24F (up YoY and QoQ). Post amalgamation, synergy will be seen gradually in 4Q24F and more clearly in mid-2025F and be a medium-term catalyst. CPAXT is trading at 28x 2025PE, above its peers at 23x 2025PE, reflecting its status as the sector’s lead growth in 2025F (+19% YoY, vs +14% YoY for peers on average). We maintain Outperform with a mid-2025 DCF TP of Bt40 (WACC of 7.0%, LT growth of 2.5%).
High conviction: CPAXT – Growth outperforming sector in 2H24F & 2025F
Catalyst #1: Sales upside from stimulus. The government approved a Bt10,000 cash handout to 14.5mn vulnerable persons (state welfare card holders and the disabled), with payment on Sep 25-30. CPAXT is positioned to be one of the sector’s key gainers, with better SSS growth, particularly in late September. We estimate its SSS growth at 5% YoY in the B2C unit and 2-3% YoY in the B2B unit in September, accelerating from 2% YoY in the B2C and B2B units in 3Q24F, led by revived sales of non-food products, better sales in the big store formats (hypermarkets and supermarkets in B2C and partly on Eco Plus stores in B2B) and stores located upcountry (notably the northeast and north). We have not yet included upside from stimulus in our forecasts, either the Bt10,000 cash paid to 14.5mn people or the Bt10,000 planned for the remaining 30mn people as a digital wallet, for which details and timeline have not yet been concluded. We estimate that each 1% rise in SSS growth will grow earnings by 1%.
Catalyst #2: Strong 2H24F earnings growth YoY. We expect 3Q24F core earnings to show more outstanding YoY growth than peers, backed by solid SSS growth (+2% YoY vs -1% YoY for peers on average), led by resilient food sales amid revived non-food sales, more high-margin products at both B2B and B2C units and under-control SG&A/sales (lower utilities and operating expenses on earlier closure of non-performing small B2C stores) but be flat/down slightly QoQ on seasonality. 4Q24F earnings will grow both YoY and QoQ to this year’s high.
Catalyst #3: Business restructuring completed, synergy ahead. After combining the B2B and B2C units via amalgamation, we see a neutral impact in the near term but positive impact from synergy in the medium to longer term. Based on proforma financial statements pre & post transaction in 2022-1H24, CPAXT’s key items on the P&L and B&S were relatively unchanged (Figure 5). CPAXT targets Bt5bn in synergy from amalgamation in 4Q24-2027: Bt2.5bn (50%) from sales and margin improvement and lower funding costs (gradually seen in 4Q24F from back-office cost savings, and more clearly in mid-2025F from joint purchasing and distribution from repackaging products in small and large sizes) and Bt2.5bn (50%) from capex reduction. We have conservatively factored Bt1.7bn on the P&L for synergy post amalgamation for 4Q24-2027 (below its target), translating into 3-4% p.a. core earnings growth, included in our 2025-27 forecasts.
Key risks are changes in government policies and purchasing power. Key ESG risks are energy & waste management, sustainable products (E) and product quality management, labor practices and data privacy (S).