• Still BUY, new THB31 DCF TP (from THB33.75), 51% upside, c.3% yield. Berli Jucker will focus on developing its fresh food and private label product categories to strengthen 2H24 sales and profit margins in its modern retail unit. Post forecast cuts, we still expect its earnings to rise YoY (and fall QoQ) in 3Q before recording its strongest quarter in 4Q. Based on a slight 2% FY24F core profit drop and the stock’s 18x FY24F P/E (-1.5SD), BJC looks suitable for long-term investment.

• Favourable outlook for non-Big C businesses. In 2H24, BJC’s packaging supply chain (16% of total sales) should be driven by new customers in the food business, stable raw material costs, and cost-savings initiatives. Its consumer supply chain (13% of sales) may benefit from the launches of new products and planned exports (to Africa, Middle East countries, China, and Indonesia). Its healthcare supply chain (6% of sales), on the other hand, is expected to be supported by a recovery in medical device sales on the back of higher disbursement of the Government’s fiscal 2024-2025 budgets.

• Boosting Big C’s fresh food sales. The modern retail supply chain (Big C) is expected to continue strengthening its fresh food product category (c.16% of Big C’s sales) in 2H24. This should boost customer traffic and frequency of store visits as well as its profit margins. Its strategies include: i) Differentiating the business by offering a unique mix of its bakery and ready- to-eat products, ii) a focus on butchery and seafood products. It also aims to improve the performance of its 50 key hypermarkets, including tourist stores, and its private label product sales.

• Profit margin may soften in 2H. Management maintained its 2024 guidance of mid-to-high single-digit sales growth and a 0.8ppt-wider GPM YoY. 1H24’s 2% YoY sales growth and 1.0ppt GPM expansion implies some challenges in achieving its sales target, and 2H24 GPM may soften from 1H24. We expect BJC’s earnings to rise YoY (but fall seasonally QoQ) in 3Q before its strongest quarter in 4Q. Big C’s 3Q24 QTD SSSG was c.-1% YoY for the group, with an improving momentum in August (c.+5% YoY in the first half of the month).

• Forecasts. We revise down BJC’s core profit by 4%, 4%, and 6% for FY24F- 26F, mainly on higher financial expenses. Core profit should see a modest 2% YoY drop to THB4.60bn in 2024 (2023: -5%). This is based on: i) Expected conservative 3% total sales growth and +1% SSSG for Big C, ii) 5% rise in other income on improving Big C leasable area operations, iii) lower opex-to- sales ratio (-0.1ppts), and iv) 23% effective tax rate (2023: 8.2%).

• Valuation. We applied a 4% ESG discount to BJC’s intrinsic value to derive our new DCF-based THB31 TP. BJC is still trading at 18x FY24F P/E (-1.5SD from its 5-year mean).

Source: RHB Research - 20 Aug 2024