Maybank Lowers BJC TP to ฿65 Due to Slow Sales in 3Q18, Expecting 4Q Earnings to Grow
Maybank Kim Eng has lowered the target price of BJC from ฿68.00/share to ฿65.00/share due to low sales in the third quarter, but still positive on the WG acquisition if BJC can seize all of its shares.
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Berli Jucker Public Company Limited (BJC) had made a significant acquisition on last Friday to hold 50.24% of White Group Public Company Limited (WG)’s shares through its subsidiary, Big C Retail Holding Company Limited (Big C Retail). As agreed with the sellers, BJC purchased a total of 8,967,818 shares at the price of ฿180.00/share for a total of ฿1,614.2 million.
Furthermore, BJC is obliged to make a mandatory tender offer for all of 8,882,182 remaining securities of WG (equivalent to 49.76% of the total issued shares) at the price of ฿180.00/share, amounting to the total offered value of ฿1,598.9 million.
 
Maybank Kim Eng has made an analysis after the acquisition, recommending “BUY” with a revised target price (discounted cash flow) of ฿65.00/share from the previous target price at ฿68.00/share.
 
Maybank expects 4Q18 earnings to grow well both QoQ and YoY, fuelled by rising orders of can packaging after a slowdown in 3Q18, enhanced production efficiency from glass bottle capacity expansion and retail business approaching the high season.
Despite the revision to lower the previous forecast due to a temporary slowdown in can packaging business, the overall BJC’s earnings are expected to continue to grow. Plus, the upside is derived from WG acquisition which return should offset all the interest expenses.
Maybank revised down our 2018-2019 normalized earnings forecast by 6% and 3%, respectively, to reflect slow sales of can packaging in 3Q18. However, the can business tends to recover in 4Q18 while the acquisition of White Group (WG) is not included to Maybank’s forecast.
 
The tender offer is expected to complete in mid-January 2019. Initially, Maybank estimates that if BJC holds 100% in WG, its profit will increase by 1%. WG posted revenue of ฿1.1 billion, with a profit of ฿138 million in 2017.
The deal worth ฿3.2 billion will be funded from loans, resulting in the net D/E rising from 1.28x to 1.30x. BJC will become the top three largest importers and distributors of industrial chemicals as packaging business tends to improve, as well as the retail business.
After the customers delayed buying cans during the redesign period in 3Q18, now they have come back. The sales volume is expected to grow next year as energy drinks customers increased the export, coupled with changes in the can size.
BigC’s SSSG is slightly positive QTD while B2B customers continue to grow. The store expansion goes as planned with three hypermarkets opened in 4Q18, thus there are 8 new stores with 150 Mini Big C stores in 2018. In 2019, 7 hypermarkets will be opened in Thailand and the first one in Cambodia, 330 Mini BigC stores. BJC’s consumer products are likely to grow well due to the launch of new products and the market share has increased, such as Tasto, Dozo, Parrot and Cellox.
 
The risks that could slow down the business are the rise of raw material price, fierce competition in retail business, and slowed customer orders.