Malaysia contributes more
Increased EBIT contribution from Malaysia compensated for muted sales growth because of one-off factors. Management continues to execute well on securing new sites with a second big box store in Malaysia announced.
1Q14 earnings is in line at 15% of our and consensus estimates. 1Q is seasonally its weakest quarter. We raise FY15/16 EPS estimates by 3% to account for new stores in Malaysia. Our residual income target price rises accordingly. We maintain Outperform, with catalysts to come from store openings and faster-than-expected SSSG.
Core earnings rose 5% despite muted sales largely because of Malaysia’s increased contribution to EBIT from S$4m to S$5m. Malaysia contributed more because of 1) lower credit provisioning from 5.8% of loan book to 5.1%, and we suspect cost optimisation coming through on improving logistics. Singapore’s EBIT contribution declined slightly from S$9m to S$8m on higher occupancy costs and increased credit provisioning from 2.5% of loan book to 2.8%. However, this does not worry us because underlying sales trend is healthy. Core SSSG increased 7.6% yoy. Overall sales looked flat because 1Q13’s numbers were inflated by a large number of export sales to overseas traders due to smartphone launches. This is a lumpy event. Similarly, Malaysia’s decline in SSSG (-4.2%) was a result of the uncertainty over elections.
2nd big box in Malaysia
Courts announced the planned opening of a second big box store in Malaysia, and two new stores in Sabah. This will see Malaysia’s retail area increase by 288,000 sq ft in FY14 – more than double the planned increase of 120,000 sq ft. As a result, total retail area will increased by an estimated 26% in FY14.
We see catalysts from continued store expansion and stronger-than-expected SSSG.
Publish date: 13/08/13