• Maintain BUY and THB47.50 TP, 34% upside and c.2% yield. We expect Central Retail Corporation’s 2024 earnings to continue its growth at 13% YoY. CRC’s outlook for hardline (Thailand) and food (Thailand and Vietnam) improves this year, and it may resume new mall openings in Thailand in 2025. 1Q24F earnings is expected to expand YoY but seasonally drop QoQ.

• 4Q23 results recap. CRC delivered 4Q23 net profit of THB3.14bn (-5% YoY, +175% QoQ). Excluding extra items (ie FX and derivative gains, asset and investment disposals), core profit was THB2.91bn (+8% YoY, +120% QoQ) during the best quarter of 2023 – 9% above our forecast. The strong results was due mainly to a one-time, smaller income tax from its fashion business in Italy, aided by the Italian government’s incentives. Topline rose 2% YoY and 10% QoQ on the fashion unit’s +3% YoY SSSG and the aggressive opening of Thai Watsadu (TWD) hardline stores in Thailand. Opex-to-sales ratio declined 0.6ppts YoY and 0.7ppts QoQ on lower utility costs. FY23’s net and core profits were THB8.02bn (+12% YoY) and THB8.17bn (+18% YoY).

• To resume opening new Thai malls in 2025. CRC will optimise its leasable property business in Thailand this year and prepare for the resumption of new mall openings in 2025. It will rationalise the rental space and improve tenant mix with new anchors, local leasing, and synergies with Central Group’s business units – to improve traffic and rental income going forward.

• Expanding TWD. The planned opening of nine new TWD branches in 2024 remains on track and will keep CRC as Thailand’s largest big-box retailer for construction materials – with 90 stores this year. An expectation over the disbursement of delayed fiscal 2024 government budget in 2Q24 and that of fiscal 2025 from 4Q24 onwards may act as a near-term catalyst for the business unit. TWD’s latest move to acquire land in c.22 locations from CRC’s major shareholder, Harng Central Department Store, looks positive as it could: i) Help balance TWD’s proportion of freehold land ownership (up to c.40% from c.6% of stores currently), ii) prepare TWD for long-run operations flexibility, iii) help reduce finance costs from a decline in lease liabilities.

• Maintain 2024F earnings. We expect a core profit of THB9.21bn (+13%) in 2024 – near pre-COVID-19 levels. Key 2024 earnings drivers: i) 9% expected total sales growth, ii) flattish GPM (28.7%), iii) lower opex-to-sales ratio (-0.4ppts), and iv) core earnings margins expansion (+0.1ppts). In the short- term, 1Q24F earnings may expand YoY, but seasonally decline QoQ. Growth supported by: i) Strong performance of Italian fashion stores in Italy, ii) Thai operations benefits from shopping tax rebate campaign, iii) sales growth for Vietnam food business due to Lunar New Year and tourism recovery.

• Valuation. As CRC’s 3.2 ESG score is the country median, we applied 0% premium/discount to its intrinsic value to derive our DCF-based TP. CRC announced 2023 DPS of THB0.55 (1.5% yield), with payment date on 24 May.

Source: RHB Research - 4 Mar 2024