CGS International (Thailand) Securities (CGSI) has adjusted its recommendations for two of Thailand’s leading retail stocks, CP Axtra (CPAXT) and Central Retail Corporation (CRC). CPAXT has been upgraded to “Add” with a target price of THB32, while CRC has been downgraded to “Hold” with a revised target price of THB37. The contrasting outlooks stem from CPAXT’s strong margin expansion and synergy benefits, whereas CRC faces slowing growth and valuation concerns.
CPAXT delivered an impressive 4Q24 net profit of THB4bn, representing a 21% year-on-year (YoY) increase and a 103% quarter-on-quarter (QoQ) surge, significantly surpassing expectations. The strong earnings were primarily driven by margin expansion, as opposed to sales growth, which remained relatively weak. CPAXT’s profitability was bolstered by improved margins at both Makro and Lotus’s, with Makro’s gross margin expanding by 110 basis points (bps) YoY to 12%, while Lotus’s rose 80bps YoY to 18.6%. This trend reflects a strategic pivot toward higher-margin products, which is expected to sustain earnings momentum in the coming quarters.
The merger of Makro and Lotus’s is proving beneficial, with CGSI estimating THB5.2bn in synergy gains over FY25-26F, which will further enhance margins and reduce operating expenses. Analysts have conservatively factored in a 20bps margin expansion from these savings, indicating further earnings upside.
Despite its strong fundamentals, CPAXT’s stock has declined 20.9% over the past three months, largely pricing in concerns over corporate governance (CG) risks. With the stock currently trading at 21.4x FY25F price-to-earnings (P/E), which is -1.4SD below its five-year mean, analysts see an attractive risk-reward opportunity. The strong earnings outlook, coupled with a projected 20.7% two-year earnings per share (EPS) compound annual growth rate (CAGR) for FY25-26F, has led to a revision in CPAXT’s profit forecasts, with an increase of 1.8% for FY25F and 3.5% for FY26F.
Given the solid earnings trajectory, margin expansion, and improved valuation, analysts recommend that investors consider adding CPAXT to their portfolios.
In contrast, CRC, despite its recent strong performance, is facing limited upside potential, prompting CGSI to downgrade the stock to Hold. The stock has already performed well, with an outperformance factor (OPF) of 21%, reducing its attractiveness for further gains.
A key factor behind the downgrade is CRC’s decision to slow down expansion plans, with store openings for FY25F being cut by 50% compared to FY24. Instead of aggressive expansion, the company will maintain capital expenditure (capex) at THB20bn-22bn, focusing instead on store renovations. While this strategy may enhance existing store performance over the long term, it could lead to short-term disruptions and limit growth opportunities in key markets.
The slowdown in expansion comes at a time when competition is intensifying, particularly in Vietnam, where rival retailers may seize market share in the high-growth segment while CRC holds back.
Softer spending from Chinese tourists on European luxury goods has led analysts to lower CRC’s net profit forecasts for FY24F by 3.0%, FY25F by 7.6%, and FY26F by 7.5%. Additionally, CGSI has raised the weighted average cost of capital (WACC) from 6.7% to 7.2%, incorporating a higher market risk premium, which has resulted in a reduced DCF-based target price of THB37.
CRC’s valuation is another concern, as the stock is trading at 22.7x FY25F P/E, which is above the sector average of 18.4x. Furthermore, CRC’s expected FY25F EPS growth of 10% lags behind the sector’s 12%, further supporting a neutral outlook. Given these challenges, analysts believe that while holding onto existing CRC shares may be reasonable, adding new positions at current levels offers limited upside potential.
