Robinson Department Store

Robinson Department Store Plc (ROBINS)  

 

- 2Q15 profit lower than expected from shared profit, tax expense  

ROBINS's 2Q15 profit was B440m (18% less than expected, 19% below consensus), staying flat yoy due to the following factors: 1) Shared profit fell 24%yoy to B93m; profit from Power Buy dropped 51%yoy to B28m due to the slowing economy and high base in 2Q14 (World Cup), while profit from Super Sport stayed at B64m. 2) Effective tax rate was 27.7%, versus the usual rate of 20%-21%, due to adjustment in deferred tax asset. Other indicators were still in line with projection. Same store sales growth improved from -6.6%yoy in 1Q15 to -1%yoy in 2Q15 thanks to sales promotions (including pre-renovation clearance sales in Sriracha branch) and a 42% growth in rental income thanks to additional leasable spaces from new branches. 

- Revise down forecast by 7% 

2H15 earnings are projected to stay close to 1H15. ROBINS's profit would made the year's bottom in 3Q15, and then peak in 4Q15 thanks to high season. 2H15 profit is expected to grow 10%yoy as three new branches would increase rental income and profit margin. However, since 1H15 profit made up 47% of the full-year forecast (slightly lower than expected) because tax expense and SG&A were higher than projected while shared profit from associates was below projection, we revise down ROBINS's earnings forecast by 7% in 2015 and 16% in 2016, given that the economic rebound is more sluggish than projected. Under the new forecast, net profit is expected to grow 9% this year. 

- Share price at average P/E ratio minus 1SD. 

The share price has considerably absorbed the economic slowdown already, with FY2015 P/E ratio of 21x, lower than peers and the five-year average of 25x (average minus 1SD). The price may drop further as 2Q15 earnings were lower than expected, so this is a good entry point. FY2015 fair value (DCF, 9.5% WACC, 3.5% TV Growth) is B54, implying 32% upside.