Robinson Dept Store

Robinson Dept Store Plc (BIGC)
What's new? We went on the road with ROBINS’ CEO, Preecha Ekkunagul, to meet investors in Singapore. Overall, investor sentiment toward the company was positive, though some of the fund managers we met consider the stock expensive. Most were impressed with the firm’s long-term growth profile, which is underpinned by sustainable high SSSG, an aggressive store rollout plan and a strong margin expansion trend. However, in the current market environment, we feel that investors are looking for a good entry price—probably a 5-10% discount from today’s price—rather than rushing in.
Strong shopping sentiment: Headline SSSG was 8.8% in 1Q12, but stripping out the cannibalization effect of 20-25% between the Ratchada and Rama IX stores, SSSG would be 10%. The CEO said that strong SSSG has been sustained into 2Q12 and should continue in the 8-9% range throughout the year (up from a 6-7% target set earlier), bolstered by higher disposable incomes, both from the increased monthly cost-of-living allowances for civil servants and state employees and from higher crop prices—although agricultural commodity prices have declined from the peaks set last year, they remain higher than they were a couple of years ago.
Upside underway: Four new Lifestyle malls are likely to open next year. Not only would this substantially reduce execution risk (compared with ROBINS teaming up with other developers), but would also mean some upside to our current earnings model, given that the Lifestyle format has a much shorter period to breakeven than any other format (see our June 21 report on CPN & ROBINS).
Eyes 80 stores nationwide: The CEO said that the aggressive expansion plan to roll out five stores a year may be extended beyond the original target to end in FY16. The more exciting point is that the number of new outlets per year after that may be more than five—much higher than our assumption of only one store a year from FY17 onward. He eyes at least 80 stores nationwide, three times the 27 stores operating currently. Moreover, overseas expansion is under study. With regard to this issue, there should be more visibility in the next couple of years.
Zoning law isn’t of much concern: The most frequently asked question concerned regulations limiting the construction of commercial buildings exceeding 2,000sq.m. The CEO said the law is already effective, but local municipal administrations still have the authority to control developments in their respective territories. In our view, most municipalities still want developments, especially shopping malls, so we don’t think ROBINS’ expansion plan will be interrupted.
Aims for GM of 30%: CEO remains confident that ROBINS can achieve its target of expanding gross margin by at least 20 bps in each of the next several years. GM was 24.8% in 1Q12 (up 74 bps YoY) and he believes it could rise to nearly 30% (the most bullish number that we've ever heard), in line with other regional department stores.
Robust equity income growth outlook: Many investors asked about the performances of Power Buy (40% holding) and Super Sports (30% holding). The CEO said these two category killers should also post robust earnings growth, led by improving existing store sales and aggressive expansion plans. Power Buy currently has 80-90 outlets and will open 25 stores a year for at least the next two years. Super Sports has 70-80 shops and targets opening around 20 outlets a year (including brand shops, such as Croc, Adidas, New Balance) as well. As such, both companies should post 20-30% earnings growth for at least the next couple of years.