A decreasing return on equity (ROE) during the past 3-4 years and a decline of net profit margin have caused CP ALL Public Company Limited (CPALL) to lose its charm unlike what it used to be when the majority of proprietary trading needs to stock this particular share in their portfolio.
CPALL’s ROE has decreased from 40% to below 30% while its net profit margin has fallen below 4% as well, even though the revenue and net profit are growing.
The case of CPALL is not about how much profit it earns, but whether its net profit margin will continue to decrease or not. This net profit margin is the indicator to determine the attractiveness of CPALL, while the 1.5% dividend does not seem to catch any interest from investors at all.
From a business perspective, CPALL has a strong point from over 10,000 branches of 7-Eleven while setting a goal to open 700 branches yearly. But the congestion of its branches also lowers the margin in each branch as well. That is why CPALL must rely on its new businesses, such as, All Cafe, instant food, Speed-D logistic, and banking agent business.
Its next challenge is how profitable can these businesses compensate for its loss and how well can it adapt to what might come next. This also includes CPALL’s “Counter Service” business that is currently losing its profit to mobile banking.
Moreover, the acceleration in starting a new business always creates more cost which will, in the end, be a thorn in CPALL’s side, making it hard to gain a good amount of profit.
As for CPALL’s share price that hiked four-day in a roll earlier may be a short-term gain and supposedly could not go any higher.
With over 30x P/E ratio, let’s wait and see how its annual report turns out and will it live up to the expectation of investors or not.
There is no denying that CPALL is the share that has constant profit, but for how long and when will these businesses be able to compensate the loss are the real concern?