Robinson Department Store

Share price drops to good entry point BUY

Robinson Department Store Plc (ROBINS)

- 3Q14 profit to make year's bottom

3Q14 net profit is estimated to make the lowest of 2014 at B430m, falling 2%qoq and

staying flat yoy as a result of low season (rainy season).

Purchasing power has not fully recovered. Same store sales are projected to weaken

by 5%yoy because new branches of Central Plaza have been opened in the same

areas as Hat Yai and Chiang Mai branches, seizing market share. However, rental

income is expected to grow by 40%yoy (same rate as 1H14) thanks to larger rental

spaces. Profit sharing from associates is projected to rise by 27%yoy owing to benefit

from the World Cup and digital TV. 3Q14 net margin would rise by 30bp to 7.5%

thanks to increasing high-margin rental income. Gross margin is projected to stay

flat, and SG&A/Sales is expected to increase as a result of higher expense on branch

expansion.

- Profit to rebound in 2014

ROBINS's profit is projected to rebound in 4Q14 (high season), and same store sales

are expected to grow yoy from the low base in 4Q13. ROBINS has planned to open

six new branches (five in Thailand and one in Vietnam) in 4Q14, probably boosting

rental income.

The company has revised up its rental income growth target from 30% to 40% in

2014 (growing 40%yoy in 9M14) and 30% in 2015. Rental income from the new

branches with 90% occupancy rate would be fully booked, and rental income from

five new branches opened in 2015 would be recognized. Thus, FY2015 earnings are

estimated to grow by over 20%. Rental income currently makes up 25-30% of net

profit, likely to rise further. ROBINS has also planned to open five new branches,

mostly Lifestyle Centers (more rental spaces than selling spaces) every year until

2020, boosting and stabilizing ROBINS's income and profit. Under the assumption

that FY2015 same store sales grow by 6%, our projection on income from sales might

be revised down. However, it might be offset by rental income growth conservatively

projected at 15%yoy. Overall, we maintain FY2015 earnings forecast (7% lower than

consensus).

- Share price drops to good entry point. BUY

The share price has dropped by over 17% in three weeks, underperforming the

market. 3Q14 profit is not likely to rebound as expected. However, the share price

has already reflected negative factors and has a limited downside. P/E ratio of 27x in

2014 and 23x in 2015 us lower than the sector's average of 32x in 2014 and 26x in

2015. This is a good entry point. We upgrade our recommendation from HOLD to BUY

and wait for a rebound from now on.