CRC – 4Q22: Profit higher than expected – THE STANDARD

what happened:

On February 28, 2023, Central Retail Corporation Plc. (CRC) 4Q22 net profit was 3.3 billion baht, an increase of 40%YoY and 182%QoQ if the loss on exchange rate and gain on asset sales amounted to 626 million baht. Normalized profit was Bt2.7bn, up 22%YoY and 108%QoQ, above expectations.

This is backed by strong gross margins and profit sharing. The YoY gains were largely driven by improved sales and margins. While the QoQ profit increase was due to seasonal factors, CRC announced a 2022 dividend payment of 0.48 baht per share (XD on May 8).

Key items in the 4Q22 results are as follows:

1. Retail sales rose 10%YoY, driven by SSS growth, net sales area (NSA) from new stores and store renovations. and an increase in omni-channel sales (up 3%YoY; omni-channel sales accounted for 18% of total sales at the end of 2022); SSS (simple average classified by business) grew 8%. YoY (vs. 10% increase in 4Q21 and 44%YoY in 3Q22) due to better economic activity. and increased tourists

   Segmentally, SSS grew 14%YoY in fashion (26% of sales), 17%YoY in food (40% of sales), but fell 8%YoY in hardline (34% of sales). ) from a 4Q21 high in sales at PowerBuy and Nguyen Kim after lockdown measures were lifted.

2. Rental and service income increased 37%YoY as a result of higher net leasable area (NLA) from new shopping centers. Rental discounts have decreased to mid- to high-single digits YoY from contract rental rates. and the occupancy rate increased to 89% in 4Q22 (vs. 86.5% in 4Q21).

3. Gross margin rose 250bps YoY to 29.3% Retail gross margin rose 210bps YoY to 27.6% on better sales contribution because the sales of high-margin products have increased And most of the better margins come from the fashion business. and partly from the food business and the hardline business Gross margins from rental and service businesses rose 320bps to 74% on higher revenues.

4. SG&A expenses/sales rose 210bps YoY to 31% due to higher SG&A expenses (up 19%YoY) from higher store expansion-related staff expenses. as well as higher marketing and utilities expenses.

5. Share of profit grew 100%YoY to Bt309mn, driven by higher share of profit from Gucci (accounting for around 50% of profit share), MUJI, Watsons and Samsonite.

How it affects:

Today (March 1), CRC’s share price increased by 1.12%DoD to 45.25 baht, while the SET Index increased by 0.23%DoD to 1,626.16 points (as of 12:30 p.m.).

2023 earnings outlook and investment strategy:

In 1Q23TD, store sales (SSS) grew Low Teen YoY with a 15%YoY increase in Thailand (Shop Dee Mee program boosted SSS growth by 2-3%), rising above 30%YoY in Italy but decreasing. Down 2%YoY in Vietnam (Calendar impact for Chinese New Year and the effect of the exchange rate from the conversion of Vietnamese dong into Thai baht)

Classified by business segment, SSS grew above 20%YoY in fashion, 5-7%YoY in food, but flat YoY in hardline.

However, normalized profit in 4Q22 with outstanding growth and higher than expected. Because gross margins and profit sharing are higher than expected, therefore, InnovestX Research has revised its 2023 forecast by 3% to 8.5 billion baht or will grow 19%YoY and expects 1Q23 profit to grow YoY from retail sales. Rental income and better margins, but will decrease QoQ due to seasonal factors. By providing an investment strategy with an Outperform rating for CRC with a year-end 2023 target price based on the DCF method that has been raised to 52 baht per share.

As for the important risk factors that must be monitored are changes in purchasing power and higher costs due to inflationary pressures and higher interest rates