Thailand Retail Sector Beyond the pandemic—Recovery path post Covid Retailing | Sector Review Figure 1: Thai retailers’ score card Source: Credit Suisse estimates; (max=5, min=1 for each category) Three key questions lie ahead. Two quarters of spending recovery make us more confident that the worst is behind us and it is time to look at operations post the pandemic. This report addresses three important questions: (1) how far away retailers are from the norm; (2) what to expect from the impact of macro uncertainty; and (3) which are best positioned to capture new consumer behaviour. Path to normalization. We are more optimistic on retailers’ operational normalization and less concerned about the margin outlook amid macro challenges. The normalization is progressing at a decent pace and is expected to accelerate in 2H22 with a more material return of international tourists. We expect earnings growth to accelerate to 85% for 2Q22E-4Q22E, from 31% in 1Q22 and 15% in 4Q21. Macro challenges present near- term headwinds but we believe retailers can manage their margins well, supported by the track record of a pass-through mechanism and narrowly volatile margins. Omni-channel paving the way beyond pandemics. Thai retailers’ omni-channel execution is strong, fairly competitive against online operators and better than our earlier expectation. They have been gaining market share with an omni channel sales CAGR of ~130% for 2020-21, above the industry’s 74%. Margins are also holding up well despite a rising omni-channel sales mix to 11% in 2021 from <2% in 2019. It is encouraging that retailers with a strong omni-channel platform can stay competitive beyond the pandemic. CRC, followed by CPALL. The sector 2023E P/E of ~24x, -1SD below average, reflects the risks but does not fully factor in normalization potential, in our view. CRC, followed by CPALL, are our top picks. We like CRC’s normalization momentum, omni-channel strength and the space expansion of VN Food and TH Hardline. We see the recent pullback as a good accumulating opportunity. CPALL stands out for its valuation with strong momentum and CVS fundamentals. We still like GLOBAL, MAKRO and HMPRO’s medium-term outlook but rate HMPRO NEUTRAL due to its more demanding valuation and weaker momentum. We downgrade BJC to UNDERPERFORM on our concerns for its near-term input cost challenges, medium-term outlook and limited valuation discount to peers. Normalisation momentumSpace expansion outlookStrength of omni-channel platformValuationTotalCRC5.0 4.0 5.0 4.0 18.0 CPALL4.0 4.5 4.0 5.0 17.5 GLOBAL2.0 5.0 3.0 4.0 14.0 MAKRO4.0 3.0 4.0 3.0 14.0 HMPRO3.0 3.0 4.0 2.0 12.0 BJC4.0 2.0 2.0 3.0 11.0 8 June 2022 Equity Research Asia Pacific | Thailand DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Research Analysts Warayut Luangmettakul 66 2 614 6214 warayut.luangmettakul@credit-suisse.com 8 June 2022 Thailand Retail Sector 2 Focus charts Figure 2: Sales per sq. m. / store number normalizing fast Figure 3: Resilient EBIT margin from pass-through mechanism Source: Company data, Credit Suisse estimates Source: Company data, CEIC Figure 4: Margins stayed healthy despite high omni-sales mix Figure 5: Normalization momentum to accelerate in 2H22 Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Figure 6: Space/store expansion in 2022-23 Figure 7: 2023 P/E vs 2021-23 earnings CAGR Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates -20%-15%-10%-5%0%5%10%1Q202Q203Q204Q201Q212Q213Q214Q211Q22QTDSector sales per m2 (vs 2019)Sector sales (vs 2019)-10.0%-5.0%0.0%5.0%10.0%15.0%1Q202Q203Q204Q201Q212Q213Q214Q211Q22AprCPI YoY - PPI YoYSector EBIT mgr0%2%4%6%8%10%12%14%16%1Q192Q193Q194Q191Q202Q203Q204Q201Q212Q213Q214Q211Q22Omni-channel sales mix (%)EBIT margin (%)EBITDA margin (%)480x11x0%50%100%150%200%250%300%CRCCPALLMAKROBJCHMPROGLOBALEarnings YoY (%)1Q22