Robinson Department Store

Robinson Department Store Plc (ROBINS) 

 

Investment thesis

We believe ROBINS’ weak performance phase is passing and the firm will resume strong growth mode in 4Q14. As such, pricing its value based on its FY15 profile looks to be more appropriate. We have, thus, rolled over our investment horizon to YE15 and raised our target price to Bt74 from Bt66. With 25% upside to our new target price and an attractive valuation (an FY15 PER of 23.4x versus a peer average of 27.2x), we maintain our BUY rating.

Slow in 3Q14 

ROBINS’ looks set to post another weak performance for 3Q14. Despite improving consumer confidence, spending power (particularly among low- to mid-income demographics) remains low, due to high household debt levels. Moreover, 3Q14 numbers will be negatively impacted by renovations at best-seller stores as part of a merchandising strategy shift. ROBINS is reallocating store space based on sales and aims to narrow its target market to the mid segment from the mid to high segments.

Strong growth to resume in 4Q14 and much stronger in FY15

Despite the weak short term outlook, we remain bullish on ROBINS’ mid- and long-term earnings profiles. SSS should rebound to growth in 4Q14, due to easing cannibalization, the low base comparison and expectations of strong post-facelift performances for best-seller stores.

FY15 should be more exciting. SSSG is likely to stay in high single-digit territory, supported by a spending recovery, a low base comparison and the impact of the new merchandising strategy. The aggressive expansion will continue with five domestic stores to open in FY15, four of which will be housed in Lifestyle Center malls, so rental income should also continue to grow robustly. We expect GM to fatten substantially with the trimming of promotions—the improvement could exceed our model if the firm can achieve its target of increasing the proportion of house brands in the sales mix to 10% in FY15 from 7-8% currently.

Vietnam operation is shaping up well

Management said the first store in Vietnam has performed slightly below expectation, due mainly to sales. The number of customers was in line with the target, but the mean ticket size was lower. The firm expects that after adding more high-price-point products, such as cosmetics, sales should improve. GM is not an issue—it is fatter than GM in Thailand, thanks to: 1) a lower proportion of products under a consignment basis and 2) high bargaining power—most local suppliers are small. With regard to expansion, ROBINS reaffirms that it will open its second outlet in Vietnam in 4Q14 and will open 2-3 stores a year in FY15-17, then may increase its rollout to 4-5 branches a year after that.