High Conviction : CRC 3Q24: Bottomed, positive signs on expenses

We expect 4Q24F earnings to be the year high, up QoQ on seasonality and YoY from store expansion, controlled SG&A/sales and a lower SSS contraction YoY partly from the completion of store renovation (Central Chidlom and Rinascente in Milan). It also can be seen as a sector proxy for potential new stimulus, such as a tax break on shopping. We maintain Outperform with a new mid-2025 DCF TP (WACC 7%, LT growth 2.5%) of Bt39 (from Bt38).

Catalyst #1: 3Q24F core earnings beat estimates. 3Q24 net profit was Bt2.1bn, up 86% YoY and 28% QoQ. Excluding Bt494mn one-off gains shows a 3Q24 core profit of Bt1.6bn, +24% YoY and +4% QoQ, 17% above consensus and 21% above INVX on lower SG&A/sales (lower obsolete and shrinkage expenses, lower lease expenses after CRC switched to from lease contracts to purchasing land for Thai Wasadu stores) and higher other income (promotional and logistics income from suppliers). The YoY growth was backed by better sales (store expansion outpacing SSS contraction) and wider EBIT margin (lower SG&A/sales and higher other income).

Catalyst #2: 4Q24F to be this year’s high, up YoY and QoQ. We expect 4Q24F earnings to be the year’s high, up QoQ on seasonality and YoY from store expansion and controlled SG&A/sales, amid slower SSS contraction YoY, partly from completion of store renovations (two flagship department stores, one in Thailand and one in Italy). Expansion. In 4Q24F, CRC plans to open a Thai Watsadu, a Go Wholesale in Thailand and two Go! Malls and hypermarkets in Vietnam. Renovation completion. In 4Q24F, it will complete renovation at Central Chidlom, its flagship department store in Thailand, with a soft opening of the luxury beauty and fashion zones in April (45% progress), the watch zone in July and a revamped Supersports store in August (75% progress), with the full opening targeted for Dec 12. Renovations will also wind up at Rinascente, its flagship department store in Milan: a reopening of the LV shop in September and renovation completed by end-October. SSS (weighted by unit). In 4Q24TD, we estimate a contraction in SSS at a slower pace of 2% YoY (vs -3% YoY in 3Q24) on better sales in Thailand (72% of sales) that will offset weak sales in Vietnam and Italy, partly from the strong THB. In Thailand, we expect a low single-digit growth in SSS YoY (vs flat YoY in 3Q24), backed by a rise in SSS in the fashion unit YoY in the mid single digits and in the food unit in the low single digits YoY (vs flat YoY and +1% YoY in 3Q24) with a drop in SSS in the hardline unit in the mid single digits YoY (vs -7% YoY in 3Q24). In Vietnam, we estimate a drop in SSS in the low teens YoY in THB and mid single digits YoY in VND (vs -6% YoY and -1% YoY in 3Q24). In Italy, we expect a mid single-digit drop in SSS YoY in THB but be stable YoY in the euro (vs -4% YoY both cases in 3Q24).

Catalyst #3: Earnings upgrade; sector proxy for upcoming stimulus. We raise our 2024 and 2025F core earnings by 4%, factoring in lower SG&A/sales. We also view CRC as the sector proxy for potential new stimulus such as a tax break on shopping. The most recent, giving a tax deduction on up to Bt50,000 in purchases, ran from Jan 1 – Feb 15, 2024, and added to SSS in the low single digits YoY.

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).