Retail commerce

Retail  commerce  

 

- Sales to stay flat from 1Q15  

Sales have declined as a result of the weak economy. May consumer confidence index plunged for the fifth consecutive month and made a 11-month low of 75.6, in line with listed retailers' weakening earnings. Therefore, same store sales are projected to stay flat qoq in 2Q15, not likely to rebound until 2H15. As a result of the economic problem, some retailers (BIGC, HMPRO, and ROBINS) have decreased the number of new branches to be opened this year, but this would have no significant effect on our earnings forecast; instead, this would decrease their cost and promote their cash flow for future branch expansion after the economy rebounds. 

 

- Profit to rebound despite lower sales due to weak economy  

Profit margin of most commerce companies improved despite weak sales. Therefore, the sector's net profit rebounded sooner than expected by 18.2%yoy in 1Q15, likely to grow further for the remainder of the year (compared with weak base at the same period last year). Profitability have continued reviving owing to better cost-efficiency (BIGC), higher rental income (BIGC and ROBINS), increase in proportion of high-margin goods (MAKRO and CPALL), and lower financial cost (CPALL). The sector's earnings are estimated to rise by 23%yoy (same pace as market EPS growth), having a limited downside. Net profit of BEAUTY, CPALL, and MAKRO (55% of the sector's earnings) is projected to jump by 29%yoy (up from +25%yoy in 1Q15), especially from CPALL. Earnings of other commerce companies (BIGC, BJC, HMPRO, and ROBINS) are expected to grow by 15%yoy; HMPRO's (10% of the sector's earnings) is likely to have a slight cut in earnings forecast, but this would not have a big effect on the sector’s earnings. 

 

- Top picks: CPALL, ROBINS  

We reiterate NEUTRAL since the sector's earnings would grow at the same pace at EPS growth. Top picks are CPALL(FV@B53) and ROBINS(FV@B64): 1) CPALL is possibly with the strongest growth in the sector for the remainder of the year, and its financial position would improve after decreasing shareholding in MAKRO. 2) ROBINS's share price has probably considerably reflected weak domestic purchasing power already, and its FY2015 P/E ratio of 22.6x is lower than the sector's average and its previous average.