Retail sector

Retail  sector 

 

- 1Q15 profit grows 18.2%yoy 

 

Seven retailers under our study posted total 1Q15 profit of B8.3bn, dropping 5%qoq due to low season but rebounding significantly for the first time in many quarters by 18.2%yoy (earlier than expected). Although same store sales have stayed flat for many quarters as a result of the weak economy, total sales grew by 9%yoy owing to aggressive branch expansion in 2014. Profitability also improved. Normalized profit margin increased for the first time in many quarters by 300bp from the weak base in 1Q14 to 4.3% owing to lower expense and better cost-efficiency (BIGC), higher rental income (ROBINS), increase in proportion of high-margin goods (MAKRO and CPALL), and lower financial cost (CPALL). BEAUTY and CPALL' earnings grew most significantly by 45%yoy and 26%yoy, respectively. 

 

- Growing throughout 2015 

 

The commerce sector's profitability is anticipated to grow for the remainder of the years. CPALL and MAKRO (59% of total profit) are likely to make the strongest profit growth among peers since the proportion of high-margin goods would increase and financial cost would stay unchanged, promoting the sector's earnings growth to 23%yoy. As a result of the weak economy, sales are not likely to improve until 2H15, and some retailers (BIGC and HMPRO) would open fewer branches this year, but this would not have a significant adverse effect on the commerce sector's earnings. 

 

- Top picks: CPALL, ROBINS 

 

Already passed their bottom and likely to rebound significantly again soon, this is a good entry for retail stocks. The share prices have not reflected positive factors yet after underperforming the market for over two years; this is a good entry point. Top picks are CPALL(FV@B53) and ROBINS(FV@B64). CPALL is attractive because its profit has rebounded more significantly than peers. ROBINS is still less expensive than the sector and previous averages, and its profit already passed its bottom.