Initiate coverage Thu, Mar 11, 2021 Central Retail Corporation CRC Central Retail Corporation Bloomberg CRC TB Public Company Limited Reuters CRC.BK Tactical: OUTPERFORM The year for an earnings turnaround (3-month) While CRC’s 2020 earnings were hit hardest in the commerce sector (of those Stock data under our coverage), with the sector’s largest contraction in SSS and dip in Last close (Mar 10) (Bt) 38.00 rental income, we like CRC for its 2021F turnaround story, off the low base Target price (Bt) 47.00 Mkt cap (Btbn) 229.18 (COVD-19) and gradual return in economic activities. We expect core profit Mkt cap (US$mn) 7,472 to turn up to Bt4.2bn in 2021F from -Bt909mn in 2020, backed by revived revenue and margin, store and plaza expansion and business adjustment. Beta L We initiate CRC as Outperform with a next-12-month DCF TP of Bt47. Mkt cap (%) SET 1.28 Sector % SET 9.80 Strategic direction for long-term growth. Thailand and Vietnam will be key Shares issued (mn) 6,031 growth areas, as both undergo economic recovery, since it has a strong footprint Par value (Bt) 1.00 in both. Food and hardline businesses will be key segment growth drivers for 12-m high / low (Bt) 40 / 20.7 Avg. daily 6m (US$mn) 16.07 expansion, while the fashion business will focus on store transformation and Foreign limit / actual (%) 49 / 13 rejuvenation. To support long-term growth, CRC plans to accelerate business Free float (%) 52.5 Dividend policy (%) ≥ 40 expansion of the high-growth hardline business in Thailand and the hypermarket business in Vietnam. It plans to optimize the supermarket business in Thailand and Price performance Vietnam and the department store in Italy. It will also work create more new 50 (Bt) business, such as a new supermarket format in Vietnam (GO! and Tops 45 40 Supermarket). It will continue to transform its department store business in 35 Thailand and restructure the convenience store business in Thailand and hardline 30 business in Vietnam. It will boost omnichannel sales through adding more 25 20 products, extending existing channels and adding new ones, and improving 15 10 CRC — Stock Price profitability via a larger scale of sales and better management of more high- 5 CRC — Rel. to SET (rebased) margin products and logistic costs. 0 Jan-21 Apr-20 Earnings turnaround in 2021F. We expect CRC’s core earnings to turn around to Jun-20 Feb-20 Sep-20 Mar-21 Aug-20 Nov-20 Bt4.2bn in 2021F from -Bt909mn in 2020, boosted by stronger revenue and margin. Source: SET, SCBS Investment Research In 2021F, we expect a 13% YoY increase in total revenue from sale of goods and rentals and rendering services, backed by 8% growth off 2020’s low COVID-hit base Share performance (%) 1M 3M 12M plus expansion into new stores and plazas and another 5% growth contributed by Absolute 13.4 8.6 7.8 the completion of the consolidation of COL in February. We expect 2021F gross Relative to SET 8.8 2.3 (14.3) margin to widen to 26.6% (+160bps YoY) with better margin contribution from sale Source: SET, SCBS Investment Research of goods (more high-margin products, better management of price promotions and of shrinkage and obsolescence, and better margin contribution from business adjustments) and stronger margin from rental and rendering services in tandem with better occupancy and rental rates. With a wider gross margin and cost savings from business adjustments, we expect EBIT margin to widen to 4.2% in 2021F (+340bps YoY). Initiating as Outperform. We initiate CRC with an Outperform rating with a DCF TP of Bt47, assuming WACC of 8.4% and perpetual growth of 2.5%. Key risks are industry competition, changes in consumer behavior and foreign currency risk. Forecasts and valuation Analyst Year to 31 Dec Unit 2019 2020 2021F 2022F 2023F Sirima Dissara, CFA Revenue (Btmn) 204,009 179,947 203,169 222,879 241,427 Fundamental Investment EBITDA (Btmn) 22,067 18,018 25,985 29,666 32,613 Analyst on Securities Core profit (Btmn) 7,290 (909) 4,212 6,456 8,101 Reported profit (Btmn) 10,633 46 4,212 6,456 8,101 (66-2) 949-1004 Core EPS (Bt) 1.55 (0.16) 0.70 1.07 1.34 [email protected] DPS (Bt) 7.71 0.40 0.28 0.43 0.54 P/E, core (x) 24.5 n.m. 54.4 35.5 28.3 EPS growth, core (%) (36.4) (110.0) n.a. 53.3 25.5 P/BV, core (x) 4.8 4.0 4.0 3.7 3.4 ROE (%) 13.9 (2.0) 7.4 10.8 12.4 Dividend yield (%) 20.3 1.1 0.7 1.1 1.4 FCF yield (x) 2.7 1.4 2.9 4.1 5.1 EV/EBIT (x) 18.7 223.5 38.3 28.2 23.2 EBIT growth, core (%) 5.8 (88.0) 488.8 32.7 17.8 EV/CE (x) 1.7 1.7 1.7 1.7 1.6 ROCE (%) (1.6) (3.3) (3.0) (2.4) (2.1) EV/EBITDA (x) 10.3 18.1 12.7 10.8 9.6 EBITDA growth (%) (2.5) (18.3) 44.2 14.2 9.9 Source: SCBS Investment Research See the end of this report for disclaimer 1 Central Retail Corporation PCL Value proposition Central Retail Corporation Public Company Limited (CRC) is the holding company for entities engaged in multi-format and multi-category retail businesses in Thailand and overseas. CRC is Thailand’s largest mixed retailer, Vietnam’s largest foreign retailer and the third largest retailer and Italy’s largest department store operator based on market share in 2018. It is also a pioneer in omnichannel retailing in Thailand. CRC serves the needs of a variety of customer groups with comprehensive merchandise offerings and a diverse portfolio of retail brands, and an extensive store network in both brick-and-mortar and omnichannel retailing formats. Business outlook Over the medium to long term, Thailand and Vietnam will be key countries driving growth as both undergo economic recovery since it has a strong business footprint that it can leverage in both. By business unit, food and hardline businesses will be key segment growth drivers for business expansion, while the fashion business will focus on store transformation and rejuvenation. Omnichannel will be another key growth driver with higher sales via adding more products, extending existing channels and adding new ones, and improving profitability through larger sales volume and better management of more high-margin products and logistic costs. We expect CRC’s core earnings to turn around to Bt4.2bn in 2021F from -Bt909mn in 2020, especially in 2Q21F from losses in 2Q20, boosted by revived revenue from sale of goods, better rental income and stronger margin off the low base generated by the government’s efforts to control the spread of COVID-19 and weak purchasing power because of COVID-19. Bullish views Bearish views 1. Resumption of domestic activities after easing government 1. Weak purchasing power and sentiment and a prolonged lockdown and more domestic travel will boost SSS drop in international tourists will hurt SSS 2. Rental income to revive as it has reduced the rent discount for 2. Rental income to come back slowly from a continued rent tenants after the lockdown was lifted discount in response to social distancing requirements Key catalysts Factor Event Impact Comment 1Q21F earnings outlook SSS contraction from last year’s Stable earnings YoY and We expect 1Q21F earnings to be relatively normal base and some rent QoQ stable YoY and QoQ, with contraction in SSS discount given to tenants, and lower rental income YoY but earnings consolidation of COL in Feb 2021 accretive from COL consolidation in Feb 2021. 2021F earnings growth Low base in SSS and rental income Positive for SSS and rental We expect a turnaround in 2021F earnings, from COVID-19 in 2Q20-4Q20 income in 2Q21-4Q21F especially in 2Q21F from the 2Q20 loss, on a revival in SSS and rental income off the low base generated by the government’s efforts to control the spread of COVID-19 and weak purchasing power because of COVID-19. Sensitivity analysis Factor Earnings impact TP impact 1% change in SSS 5-10% Bt1-2/sh. Thu, Mar 11, 2021 2 Central Retail Corporation PCL Financial statement Profit and Loss Statement FY December 31 Unit 2016 2017 2018 2019 2020 2021F 2022F 2023F Revenue from sales and services (Btmn) 163,377 175,744 188,442 204,009 179,947 203,169 222,879 241,427 Cost of sales and services (Btmn) (113,582) (123,109) (131,868) (144,856) (134,948) (149,053) (162,733) (175,682) Gross profit (Btmn) 49,795 52,635 56,574 59,153 44,999 54,116 60,146 65,745 SG&A (Btmn) (51,927) (54,492) (59,995) (61,957) (57,428) (61,178) (65,879) (70,840) Other income (Btmn) 11,983 12,218 14,941 14,995 13,889 15,662 17,143 18,541 Interest expense (Btmn) (1,381) (1,187) (1,186) (1,085) (2,950) (3,104) (3,089) (3,046) Pre-tax profit (Btmn) 8,470 9,175 10,334 11,105 (1,490) 5,496 8,322 10,400 Corporate tax (Btmn) (1,754) (1,088) (1,974) (2,480) 744 (1,099) (1,664) (2,080) Equity a/c profits (Btmn) 469 461 287 391 132 149 163 177 Minority interests (Btmn) (1,260) (1,447) (1,589) (1,726) (295) (333) (365) (396) Core profit (Btmn) 5,925 7,101 7,058 7,290 (909) 4,212 6,456 8,101 Extra-ordinary items (Btmn) 298 (165) 4,763 3,343 956 0 0 0 Net Profit (Btmn) 6,222 6,936 11,822 10,633 46 4,212 6,456 8,101 EBITDA (Btmn) 21,716 22,534 22,627 22,067 18,018 25,985 29,666 32,613 Core EPS (Bt) (Btmn) 2.81 3.37 2.44 1.55 (0.16) 0.70 1.07 1.34 Net EPS (Bt) (Bt) 2.95 3.29 4.08 2.26 0.01 0.70 1.07 1.34 DPS (Bt) (Bt) 0.85 1.00 0.80 7.71 0.40 0.28 0.43 0.54 Balance Sheet FY December 31 Unit 2016 2017 2018 2019 2020 2021F 2022F 2023F Total current assets (Btmn) 63,237 106,633 60,187 65,785 67,177 71,919 77,210 81,761 Total fixed assets (Btmn) 165,012 154,355 117,170 117,721 172,003 171,302 169,766 167,353 Total assets (Btmn) 228,249 260,989 177,357 183,505 239,180 243,221 246,975 249,114 Total loans (Btmn) 91,925 113,208 42,209 61,155 121,917 116,917 109,417 99,917 Total current