Robinson Department Store

Robinson Department Store Plc (ROBINS)

 

Management expects the greater amount of rental space provided by more stores in the “lifestyle” format to expand rental income by 30% in 2015, providing support again, as it did in 4Q14. ROBINS expects SSS growth to bounce back up to 4-5%, chiefly in 2H15 (vs. -6% in 2014 and 1Q15TD), as it adjusts product assortment to match a change in client profile, fading store cannibalization, and better sentiment. With the strong rental income, the return of SSS growth and store expansion, we estimate 3-yr EPS growth of 20%. BUY with a new PT of Bt62.  

Rental income supports earnings and margin in tough times. 4Q14 was a tough quarter but thanks to a jump in rental income (+58% YoY) after opening four lifestyle centers, in which half of the total space is rental area, EBIT rose 18% and EBIT margin widened to 10.7% (+150bps YoY). This was able to combat the weak SSS growth (-6% YoY), lower gross margin (-29bps YoY) and high SG&A/sales (+250bps YoY). Rental income/EBITDA rose to 50% in 4Q14 from 37% in 4Q13. With more lifestyle format stores (31% of stores at end-2015 from 27% at end-2014), thus more rental area, ROBINS expects rental income to grow 30% in 2015 which, by our estimates, will raise EBIT margin to 10.1% (+80bps YoY) in 2015.  

SSS growth still negative YTD. In 1Q15TD, SSS is still contracting at a level similar to 4Q14 (-6.1%), hit by a plunge in high-spending Russian tourists (6-7% of total SSS comes from stores in tourist towns). Timing this to be solidly in place by next tourist season, ROBINS is working to adjust its product assortment with a greater focus on products that match customer interest (footwear, cosmetics, home and luggage) and the change in tourist profile, i.e. fewer Russians but more Chinese tourists. In 2015, ROBINS expects SSS growth to bounce back up to 4-5%, primarily in 2H15 (vs. -5.8% in 2014), backed by adjusting product assortment, fading store cannibalization in Chiang Mai and Had Yai (-2% of its SSS in 2014), and the return of consumer purchasing power. 

Expansion. In 2014, it opened seven stores, five in Thailand (all lifestyle centers) and two in Vietnam (Hanoi, its own store, and Ho Chi Minh City, operating under license), giving it 41 at end-2014. In 2015, it will open four stores in Thailand: three lifestyle (Burirum in 2Q15, Srisaman in Bangkok and Mae Sod in 4Q15) and one in a shopping mall (Rayong in 2Q15). Vietnam expansion is not on the books for now, because of that country’s limits on new stores and the difficulty of finding new shopping malls in which to open a department store. It targets 2015 CAPEX of Bt4bn, funded by internal cash. It plans adding 4-5 stores in Thailand p.a. to reach 60 in 2020 (from 39 at end-2014). 

Maintain BUY. We lower 2015F by 3% and 2016 by 5% to accommodate a reduction in SSS growth assumption that is partly offset by higher rental income. This gives a new end-2015 PT of Bt62 (from Bt65). We expect 1Q15 to grow both YoY and QoQ, thanks to a full quarter of higher rental income after opening five lifestyle centers in the year, four of which were opened in 4Q14, providing offset to the weak SSS growth. We forecast 3-year EPS growth of 20%, backed by higher rental income (+20-30% p.a.), return of SSS growth (+2-4% p.a.) and store expansion (4-5 stores p.a.).