This stock is one of the most expensive on our radar.
The company is a retailer/distributor of mobile phones, tablets, and other IT accessories from bricks and mortar store brands Banana IT, Studio 7, iCare, etc. It also runs 166 retails shops for TRUE under brand name TRUE by Comseven.
Bulk of its 800 stores are in shopping malls, but it will open standalone stores later this year to test the market.
At a recent analyst meeting COM7 disclosed that sales during lockdown of malls for 45 days was 100 million baht, nearly half of its management estimate.
Sales have rebounded strongly in last few weeks as pent up demand for laptops and other equipment returned. It expects the launch of 5G by telecommunications and focus on work from home will boost demand for IT products. Hence it is going ahead to add 75 more branches this year.
Analysts, mainly with local brokerage firms, have upgraded the stock with target price of 31-35 baht per share (UOB securities has the highest target of 46 baht per share). Although PE rating of a company in growth phase tends to be high – COM7 is trading on 33x, yet an IT retailer amidst slumping does not command premium rating.
If we compare COM7’s current rating of price to sales, 5-year average PE, return on equity, etc., we will find COM7 at par with established players such as HMPRO and CPALL. We agree that COM7 is a pure play on digital hardware economy (mobiles, and laptops), it plans to enter household electronics such as televisions, projectors etc., which will dilute its unique franchise.
In our opinion, COM7 price is already discounting the best-case scenario, which exposes it to disappointment. Note that stocks with high perceived growth do not get de-rated until the growth slows of more than 3 quarters, a sharp steep fall in price could be temporary in the short term. In the medium term, the economic reality may start hurting its same stores growth, and stock could get de-rated. We think a derating is highly likely and will happen by the end of this year.
