I would like to express my warm thanks to Ajarn Vasan Siraprapasiri for his guidance on the valuation methods. They had to bear a heavy burden of responsibility and concern to bring my thematic paper to a successful conclusion, indeed in selfless spirit. This thematic paper studies Relatives Valuations based on interesting company like Big C Supercenter Public Company Limited.
Relative Valuation determines the financial value of the company and is used to compare with its competitors. The result of applying valuation of Big C Supercenter with the supporting information as macroeconomic, industry, competitive and investment analysis, indicates that the value of Big C is neither overvalued nor undervalued compared to its current price as on December 4, 2014 not.
VALUATION
Highlights
Although purchasing power will improve but there is only 1.25% upside profit which does not convince the investor as much as expected. This is because of any risks faced by BigC as 1) aggressive competition in retail business and 2) it needs to spend at least 2 years for Mini BigC to generate sales to cover operating costs.
Business Description
In addition, BigC is also introducing a new store formula as “BigC Jumbo” for hotels, restaurants and large families. In 2012, BigC signed the 'Exclusive Retail Partnership Agreement' with Bangchak Petroleum to set up Mini BigC in the storage stations in Bangchak. For retail companies, also called 'multi-format retailers', BigC is able to meet all demand from all customer segments for unlimited shopping.
Supermarket: In 2010, the first supermarket format called "BigC Junior" opened, but it was changed to "BigC Market" when Carrefour was integrated by BigC since 2011. For real estate business also called "Dual retail - Property model", BigC offers rental space, there are inside and outside a store.
Industry Overview and Competitive Positioning
- Macro Economics Analysis
- Industry Analysis
- Competitive Analysis
- Investment Summary
This is because the increase in population means that there is an increasing demand to consume both durable goods and non-durable goods. If we consider the spending for consumption in the first half of 2014, the consumption of non-durable goods rises by 2.8% while. Therefore, it is able to consider that when the economic downturn occurs, the durable goods will have more effect than the non-durable goods because many durable goods are not necessary to live.
Meanwhile, the durable goods are high-value goods, so spending on these products has depended on the faith and stability of future income. Competitive analysis shows that BigC does not excel in this sector and that the company ranks second in terms of market capitalization. Although BigC has high solvency risk (Debt Ratio = 61.88%) with low Liquidity (Current Ratio = 0.59) compared to others except CPALL, its Cash Conversion Cycle is negative (-54.71 days).
In response to the economic slowdown, BigC has tried to turn this crisis into opportunity by working hard to reaffirm its position as a low-price leader and launching many marketing campaigns, such as the Golden Saturday Campaign, a joint long-term campaign with the Ministry of Commerce to provide additional savings for customers during economic slowdown and stamp collection campaigns to obtain premium items. Currently, BigC has BigC Jumbo in 4 stores, while Siam Makro has 77 stores (excluding 5 Siam Frozen stores). BigC Market stores offer a variety of products, both food and non-food.
Currently, BigC has BigC Market at 40 stores while Tesco Lotus has Tesco Lotus Talad at 190 stores. Currently, BigC has Mini BigC at 347 stores while Tesco Lotus has Tesco Lotus Express at 1,257 stores. Thai retail business is expected to recover in the second half due to improving consumer confidence driven by Thai GDP.
Valuation
- Assumption for Projected Cash Flow
- Number of new store expansion
- Source of Revenue
- Multiple Valuations
For multiple valuations we use both Trailing and Froward ratios to make a comparison and find out the price of BigC as shown below;. However, both Trailing PER and Forward PER are still in the range of SETCOMMERCE as times over the last 7 years. The price from the Trailing method and the Forward method are equal to 206.14 baht and 223.71 baht respectively.
However, when we compare BigC with other competitors since 2014, BigC is in last place and BigC also has a lower P/E than the commercial industry, so it may indicate that the price of BigC at the end of 2014 is undervalued. Lagging method, we have the average of 4 actual quarters of BigC sales from 4Q2013 to 3Q2014 as lagging sales of 128,533 million baht. However, both Trailing PS and Forward PS are still within the reach of SETCOMMERCE as they have been for the past 7 years.
The price from the Trailing method and the Forward method are equal to 225.25 baht and 220.55 baht, respectively. Trailing method, we summarize the current 4 quarters of BigC's EBITDA from Q4 2013 to Q3 2014 as trailing EBITDA equal to 14,174 million baht. However, both Trailing EV/EBITDA and Forward EV/EBITDA are still in the range of SETCOMMERCE both times over the last 7 years.
The Trailing and Forward EVs are equal to 157,708 million baht and 161,584 million baht, respectively. To calculate the price of BigC using this ratio, we divide the EV by the number of shares outstanding. Therefore, the price of BigC from Trailing method and Forward method is equal to 191.16 baht and 195.86 baht respectively.
Financial Analysis
- Size Analysis
- Common size Analysis
- Trend Analysis
- Selected Financial Ratios
According to the charts above, BigC is the second largest firm in terms of asset size in this industry with 97,164 mb. BigC's total revenue is equal to 130,971 which is the second place in the industry followed by Makro with 129,087 Mb. The second largest component of BigC's assets are other long-term assets, which are mainly from goodwill, mainly consisting of goodwill in the share purchase agreement for the purchase of shares of CenCar Limited, Nava Nakarintr Limited and SSCP (Thailand) Limited in 2010.
On the liability and equity side, there are two key items, namely accounts payable and long-term borrowing. BigC's long-term debt ratio is the highest compared to its competitors since BigC entered into two long-term loan agreements in 2012 to refinance its short-term loan to finance the acquisition of the company in 2011. The company's assets have been increasing since 2011. acquisition with Carrefour and is expected to increase in the future in line with the expansion of stores across the country.
According to the chart above, we can see the decrease in Short Term Liabilities and increase in Long Term Liabilities of BigC. The reason for this is that BigC entered into a long-term loan agreement in 2012 to refinance its short-term debt for business acquisition in 2011. Net profit and operating profit increased significantly from 2010 to 2011 from the acquisition with Carrefour and continued increase in recent years, this represents good performance of the company with challenging situations.
The higher gross profit in recent years reflects the company's higher sales, successful cost optimization and productivity improvement initiatives, and ongoing negotiations with suppliers. In terms of efficiency ratios, total asset turnover and fixed asset turnover are also quite low compared to the competition, as BigC has rapidly expanded its new stores in recent years. Therefore, these new stores cannot fully generate revenue for the company in the first few periods of the crisis. investment. On the other hand, the company's profitability ratios are quite excellent compared to its main competitors, such as EBIT margin and EBITDA margin, which means that the increase in sales is much higher than the increase in the company's costs .
Solvency ratios such as debt ratio, long-term debt ratio, and debt-to-equity ratio show that BigC's total debt is slightly decreasing after the acquisition of Carrefour in 2011. However, in 2013, the company's ability to maintain its profitability ratios at the same level as the figures for 2012 and 2011 represent his successful efficiency improvements and cost controls.
Additional Downside Possibility
- Natural Disasters
- Failure of opening new stores on plan
Although the company experienced significant cost pressure in 2012 and 2013, it continued to face cost pressure due to the increase in the minimum wage and the increase in energy costs. The net profit margin also increased to 5.5% in 2013, from 5.1% in 2012 and 4.8% in 2011, mainly due to a decrease in financing costs due to lower debt levels and from a reduction in corporate taxes due to of the slight reduction in the effective tax rate in 2013. .
Investment Risks
- QE tapering of USA
- Interest rate risk
- Risks on market and competition
- Business interruption risks
In addition, on December 27, 2013, BigC entered into another long-term loan agreement for total credit facilities of 3,000 million baht with 2-year maturity. According to the above agreements, the majority of long-term loans carry the floating interest rate as BIBOR which the company faces with the fluctuation of the interest rate. Currently, the lifestyle of people has been changed because the new technology has been developed and grown by leaps and bounds which reflects on the change in customers' shopping behaviour.
In addition, the retail market is highly competitive, so if the company is unable to provide goods and services to achieve and maximize customer satisfaction and needs, the company may end up losing market share and profits to other competitors. BigC has had bad experiences in the past with floods and fires, which caused damage to many of the company's branches. To address these issues, the company decides to engage a specialist with expertise in developing an appropriate business continuity plan that has already been implemented at its headquarters, branches and distribution centers.
DATA
Business Structure
Major Shareholders as of July 31, 2014
Income Statement
Balance Sheet
Statement of Cash Flow
Key Financial Ratio
Current Construction plan and Capital Investment
Multiple Valuation – Price to Earnings Ratios
Multiple Valuation – Price to Sales Ratio
Multiple Valuation – EV to EBITDA
Regional Peer Comparison
