Robinson Department Store

Robinson Department Store Plc (ROBINS) 

 

Improving SSS growth. In 3Q14TD, ROBINS saw some improvement in same-store sales (SSS) growth from -3% YoY in 1Q14 and -7% YoY in 2Q14, thanks to improved sentiment and the lifting of the curfew, helping beat down the continuation of store cannibalization brought by the opening of new Central department stores (Chiang Mai and Had Yai) in 4Q13. ROBINS expects the improved sentiment, completion of its store renovation (3-4 stores) and fading store cannibalization to lift SSS growth to positive from 4Q14. Longer term, it will improve SSS growth via a new category leader strategy, concentrating on products with high potential i.e. footwear, cosmetics, denim, home and luggage products. This will be applied to new stores in 2014 and to existing stores by mid-2015. We expect SSS growth of -1.7% in 2014 (vs. 1H14 at -5% and its target of zero) and +6.0% in 2015, vs. its 5-year average of 7.0% in 2009-13.

Aggressive store expansion target. ROBINS still plans to add 7 new stores this year - one in Hanoi in 2Q14, one in Chachoengsao in 3Q14 and five in 4Q14 (Roi-Et, Samut Prakarn, Prachinburi, Mukdahan, and Ho Chi Minh City). This will give it 41 stores at end-2014. Backed by its net cash position, in 2015-16 it plans to add 7-8 stores per year: five in Thailand and two to three in Vietnam, more aggressive than our estimate of six stores per year.

Targets better gross margin in 2014 of 24.6% (+30bps YoY, or +10bps above our estimate), via product assortment and promotion management. ROBINS’s new store in Vietnam has had a slightly better gross margin than in Thailand, thanks to a lower portion of low-margin consignments at 70% vs. 80% in Thailand. ROBINS plans to raise the portion of its high-margin private brand to 10-15% of sales in 2015 from 7-8% now.

Better rental and equity income. Rental income will rise further (+40% YoY in 1H14), in tandem with more rental space from the opening of new lifestyle centers (27% of stores in 2014 vs. 18% in 2013). Its equity income (Powerbuy and Supersport) will continue to grow (+38% YoY in 1H14) from better sentiment and last year's low base.

Sector’s top BUY maintained with mid-15 DCF-PT at Bt70. ROBINS is a sector laggard, falling 30% since the SET’s peak in May 2013 versus a drop of 12% for the sector and 6% for the SET. At the same time, 2H14F earnings will be strengthened by a better SSS growth and seasonality. Its 3-year EPS growth is solid at 17%, backed by fast recovery of SSS growth and a more active and concrete expansion plan (strong track record with net cash position). Key risks: 1) changes in SSS growth; 2) execution of store expansion; 3) promotions and competition.