Robinson Department Store

Share price undergoing correction. Rebound projected ahead BUY

Robinson Department Store Plc (ROBINS)

3Q14 profit disappointing due to weak normalized margin

ROBINS posted 3Q14 net profit at B353m or a decrease of 20%qoq and 17%yoy,

which was 18% lower than our forecast and 19% under consensus. Normalized

margin decreased 110 bps yoy to 6.1%, 140 bps lower than projected; gross margin

dropped 30 bps yoy to 23.5% as the company could mainly sell low margin products

as a result of weak purchasing power. SG&A/sales was 27.4%, rising 300 bps

because of branch expansion expense and depreciation expense that was fixed cost

and has increased at a faster pace than flat sales growth. Same-store-sales

weakened 6.8%yoy, while shared profit from associated companies, both Power Buy

(staying flat yoy) and Supersports (up 14%yoy) was only B94m, lower than

expected. Rental revenue increased remarkably by 32%, close to estimate.

Profit to gradually improve, rebound projected in 2015

In spite of the slowing economy, we are convinced that ROBINS would show larger

profit growth than peers in the last quarter of the year which is a festive season.

Same-stores-sales would exhibit the first increase in four quarters, compared with

dull performance in the same period last year as a result of the political problem.

Rental revenue is projected to continue increasing from its plan to open four new

branches locally. Accordingly, 4Q14 profit may be the peak of the year and could

show the first year-on-year growth of the year. However, 9M14 profit was lower than

projected and made up only 63% of our full year forecast. Therefore, we revise down

a profit forecast for FY2014-2015 by 8% to reflect lower sales and normalized

margin. Under the new forecast, FY2014 profit would stay flat from the prior year, but

the growth of 17% is foreseen in FY2015 from rising same-store-sales and at least

30% increase in rental revenue.

Buy on weakness

ROBINS is still the most interesting choice of the commerce sector for its share price

has been undergoing correction and has not yet reflected a rebound in 2015. P/E

ratio in 2015 is 26x, lower than the sector’s average of 28x. 2015 fair value (DCF,

WACC of 9.5%, and TV growth of 3.5%) is B64. As the share price may weaken as a

result of lower-than-expected earnings result, this is a good entry point.