Retail sector

Retail sector

- Short-term positive sentiment from economic stimulus plans 

The B130bn-worth economic stimulus plans for low-income people lasting one to three months and other additional economic stimulus measures would boost purchasing power and regain consumers' confidence for the short term, thus benefiting the commerce sectors. These measures would revive sales, which have been slowing down. Profit margin is also likely to improve as retailers change their strategies. 

-  CPALL, COM7: most outstanding in 2H15 

The sector's profit is expected to grow significantly by 17% in 2015 and 22% in 2016 (close to consensus), having a limited downside thanks to the economic stimulus policies. Under our conservative forecast, earnings of the following companies would be strong for the remainder of the year:  

1) CPALL's 2H15 net profit is projected to leap 30%yoy since its well-received stamp promotion would boost its same store sales by 1-3%yoy, the strongest in the sector. In addition, financial cost from MAKRO is projected to drop thanks to decreasing refinancing cost and other financial fee. 

2) COM7's net profit is projected to peak in 2H58 as new products, e.g. Apple watch (July) and iPhone 6S (possibly October), are launched. COM7's July-August income improved from May-June and the same period last year. Its profit margin is expected to rebound as well thanks to better trade term for smartphone products. Despite being a low season, COM7's 3Q15 net profit is projected to stay unchanged from 2Q15 at around B62m and jump by over 100% from the same period last year. 

- Top picks: COM7, ROBINS 

The prices of commerce stocks have risen for two weeks due to projection on economic stimulus plans. The prices of HMPRO, CPALL, and BIGC have surged by 14%, 10%, and 7%, respectively, and have a limited upside, while other stocks have rebounded by only 1-5%. Top picks are the following stocks:  1) COM7([email protected]) has 2015 P/E ratio of 14x, lower than the sector's average of 29.1x, JMART's of 20x, and SIM's of 22x, and its profit is expected to peak in 2H15; this is a good entry point. 2) ROBINS(FV@B54) is still laggard with the second lowest 2015 P/E ratio of 21.2x; since it has many branches outside Bangkok, it would benefit from these policies.