Commerce

On the highway to recovery

Commerce

Positive indicators, positive demand and performance. The Consumer Confidence Index

(CCI) has risen for four months in a row to reach a 13-month high in August at 80.1 points.

Behind this is a better overall environment with renewed confidence in the country and a new

government to create policies to stimulate economic recovery. The Private Consumption Index

(PCI) also showed positive growth of +0.2% in July 2014. Since 2009, the correlation between

the movement of the CCI and commerce sector stock prices has been close to 70%. Thus a

continued rise in confidence will be positive for sector price performance.

Private consumption back in 2H14, positive to sector SSS growth. After shrinking for

three quarters in a row, private consumption turned up to growth of 0.2% in 2Q14. SCB EIC

expects household consumption to recover to +2.5% in 2H14 (vs. -1.4% in 1H14) off a low base

from the economic slowdown in mid-2013 and politics from Nov 2013, plus better sentiment

from greater political stability, faster government budget disbursement and policies helping

farmers and SMEs. Historically, sector SSS growth has moved with private consumption

growth. We expect the sector’s SSS growth to revive to 2.9% in 2H14F after contracting 0.8% in

1H14. SSS growth for staples (+5.0% in 2H14F vs. +1.5% in 1H14) will continue to outperform

discretionary items (+0.9% in 2H14 vs -3.1% in 1H14).

Better 2H14 earnings momentum, both HoH and YoY. We believe 2Q14 was the nadir for

the sector’s earnings, improving gradually from then to reach this year’s peak in 4Q14, its high

season. We estimate sector 2H14F earnings to comprise 54% of 2014 net profit, bolstered by

seasonality and the recovery of SSS growth in tandem with better consumption sentiment. On

a YoY basis, we expect sector 2H14F earnings to grow 11% YoY off last year’s low base, hit by

the economic slowdown and political unrest. In 2H14F, CPALL is positioned to show the best

earnings momentum (+27% YoY) with GLOBAL the weakest (-21% YoY).

Top picks: CPALL and ROBINS.

CPALL: 1) The sector’s best 2H14 earnings growth both YoY and HoH upon return of SSS

growth, margin expansion and absence of fees from the MAKRO deal after recording these

expenses from 3Q13 through 2Q14; 2) the sector’s best 3-year EPS growth of 25% backed by

operational improvement, synergies from MAKRO and lower interest expenses from

deleveraging; 3) upside from potentially faster-than-expected deleveraging.

ROBINS: 1) The sector’s most laggard play (-30% vs. the sector’s -8% and the SET’s -4% since

the recent peak of SET in May 2013); 2) Stronger 2H14F earnings with solid 3-year EPS

growth of 16% from SSS growth recovery and more aggressive store expansion.