20160627-辉立证券-MC_Group__Series_of_promotion_campaigns_a_key_driver_to_FY16_growth_13页_1mb

MC Group Summary

Core Content

MC Group is a Thai-based company that operates in the retail and lifestyle sector, focusing on apparel and brand management. It is recognized as a strong local brand that competes effectively with international brands such as Levi's, Wrangler, and Lee. The company's business strategy involves expanding its market presence through a combination of physical and digital channels, as well as targeting new Asian markets to capture market shares from Chinese tourists.

Main Points

• Market Position: MC is a leading Thai brand known for its affordable yet high-quality products and designs tailored for Asian body types.
• Growth Strategy: MC plans to expand its physical presence by opening 20-30 freestanding shops and 15 point of sales (POS) in modern trade channels in 2016. It also aims to extend its market presence into China, Japan, Korea, and Hong Kong.
• Promotion Campaigns: A series of 52 weekly promotion campaigns in FY16 drove strong sales performance, with revenue expected to rise by 15% to Bt4,488.53mn and net profit to grow by 9% to Bt797.6mn.
• Inventory Management: The company is working to reduce inventory turnover from 13.3 months in 2015 to 9 months in FY16, which is attributed to the promotion campaigns.
• Product Diversification: MC launched a new T-Shirt line and formed a joint venture (JV) with Petchakasem Holding to develop a top wear line, aiming to increase the ratio of top to jeans sales from 1:3 to 3:1.
• Financial Performance: FY16 is projected to show strong earnings growth, with a net profit of Bt797.6mn and a net income per share (EPS) of Bt1.00. The company's P/E ratio is expected to decline to 13.1x, and the P/B ratio to 2.5x.
• Valuation: The company is valued using a DCF method with a WACC of 10% and a growth rate of 4%. The target price is set at Bt16.00, indicating a potential 28.63% increase from the current closing price of Bt13.10.
• Corporate Governance: The company has been rated at Level 5 (Extended) for anti-corruption indicators, showing a commitment to ethical practices.
• Peer Comparison: MC Group is compared with other Thai listed companies, such as Beauty Community PCL and Big Camera Corp PCL, with a P/E ratio of 14.2x and a market cap of Bt10,480mn.

Key Information

• Promotion Impact: The promotion campaigns were highly successful in the first quarter of FY16, contributing to revenue and net profit growth.
• Market Expansion: MC aims to expand its market presence into Asian countries where it can capitalize on its design appeal to Asian consumers.
• Financial Projections:
  • FY16 Revenue: Bt4,488.53mn (+15%)
  • FY16 Net Profit: Bt797.6mn (+9%)
  • FY16 EPS: Bt1.00
  • FY16 P/E Ratio: 13.1x
• Shareholder Structure: As of 4 May 2016, Ms. Sunee Seripanu holds 45% of the shares, making her the largest shareholder.
• Dividend Yield: The dividend yield is expected to increase from 5.7% in FY15 to 7.1% in FY17, indicating a potential for higher shareholder returns.
• Debt and Leverage: MC maintains a relatively low debt-to-equity ratio of 0.46, suggesting a stable financial position.
• Stock Performance: MC's stock has shown a positive trend in the past 12 months, with a P/E ratio of 14.7x and a market cap of Bt10,480mn.

Financial Highlights

Strategic Initiatives

• New T-Shirt Line: Expected to boost sales as T-shirts are more commonly purchased than jeans.
• Online Presence: MC launched an online website, mcshop.com, to enhance its digital footprint.
• JV with Petchakasem Holding: Aims to revolutionize top wear with new technology "soft tech."
• Expansion Plans: MC is expanding into CLMV markets (Cambodia, Laos, Myanmar, Vietnam) through partnerships and local market studies.

Risk Factors

• Slow Economic Recovery: May affect consumer spending.
• High Inventory Levels: Could impact profitability and cash flow.
• Fashion Sensitivity: Lifestyle products are subject to changes in consumer preferences.

Conclusion

MC Group is a Thai retail company with a strong market presence and a clear growth strategy. The company is leveraging its design appeal and aggressive promotion campaigns to drive sales and market share growth, both domestically and internationally. Despite a slow economic recovery, the firm is optimistic about its future performance, supported by its expansion plans and product diversification. The 'BUY' rating and target price of Bt16.00 reflect positive expectations for its stock.