Commerce

Commerce 

 

BIGC released its official 1Q15 SSS growth at -0.2% YoY, slightly below its preliminary data indicating a slight positive in Jan-Feb. We expect to see this in other retailers as well. However, the skies are expected to brighten in 2H15 with better SSS growth as the government speeds up its spending, encouraging market sentiment, plus a more stable agricultural price trend. We like CPALL and ROBINS for their better 1Q15F profit (up YoY and QoQ). 

1Q15 SSS growth still weak. BIGC released its official SSS growth in 1Q15 at -0.2% YoY, slightly weaker than its preliminary data indicating slightly positive SSS growth in Jan-Feb. BIGC notes this was due to some pullback after the surge around Chinese New Year. We expect the same trend to be seen in other retailers, which implies a strong chance of negative sector SSS growth for a sixth consecutive quarter. The lackluster consumption arises out of weak consumer sentiment (CCI down three months in a row) caused by concerns on economic recovery, lower agricultural prices that are reducing farm income, and slow government budget disbursement (only 19% of the budget in 5MFY15). 

2H15 better. We expect sector SSS to improve in 2H15. Consumer sentiment will improve once the government speeds up budget disbursement to meet its targeted 87% in FY2015F plus more stable agricultural prices. In 2015, we estimate sector SSS growth at 3.0% (from  -1.0% in 2014), backed by private consumption growth of 2.3% (from 0.3% in 2014) in 2015. 

Top picks: CPALL and ROBINS. Our top picks are based on 1Q15F earnings improvement (up YoY and QoQ) from factors other than SSS growth, which is still slow. CPALL’s 1Q15 profit will improve without last year’s costs from the MAKRO deal, including lower cost of funds after debt refinancing. Meanwhile, the forecast that this year’s hot season will be hotter than last year’s will lead to a surge in beverage sales, reviving CPALL’s SSS in 2Q15. ROBINS’ 1Q15 profit will pick up on higher rental income from new lifestyle centers.