Robinson Department Store

Robinson Department Store Plc (ROBINS) 

 

Investment thesis

We believe ROBINS is one of the best turnaround plays under our coverage. Its new strategies are starting to bear fruit and should push its growth profile up to catch the peer average. However, its valuation looks much cheaper than its peers. Even after the recent share price rally, ROBINS currently trades on PER of 22.8x FY16 versus peer average of 27.1x. We maintain our BUY call with our new YE16 target price of Bt60.

New strategies are starting to reap benefits 

In early 2015, ROBINS initiated a transformation plan with two core strategies; store transformation and a merchandising overhaul. With these core strategies, ROBINS SSSG has returned to growth since 4Q15 and the momentum has continued into 1Q16, even in the absence of the government tax incentive scheme that was proffered during 4Q15. If sales continue to gain at this momentum throughout the year, ROBINS’ SSSG target of 4% this year should not be too hard to achieve. It is notable that we still maintain our SSSG assumption of 3% in FY16.

International exclusive brands to boost gross margin

International exclusive brands (part of the merchandising overhaul) should play a major role to expand gross margin going forward. ROBINS set a target to increase the proportion of exclusive brands to 3% of sales in FY16 and to 10% in FY20 by adding more brands to its portfolio and rolling out these brands to more stores. If the proportion meets the 3% target this year, ROBINS’ gross margin should expand 50bps. However, we assume in our model that the proportion of the exclusive brands will gradually increase to 3% at YE16, so the proportion will average 2.25% for FY16, which would cause gross margin to fatten 35bps this year (still higher than our previous assumption of a 20bps increase).

Earnings and target price upgrades

We have upgraded our earnings estimates by 2% in FY16, 4% in FY17 and 5% in FY18, mainly due to our revisions on gross margin assumptions (+12bps in FY16, +28bps in FY17 and +36bps in FY18 from our previous model). We also believe that the ROBINS’ new strategies will lead to a stronger growth profile, so we raised our terminal growth assumption to 2.5% from 1.5%, pushing DCF target price from Bt50 to Bt60. Moreover, we believe that room for further upgrades remains as our key assumptions (SSSG of 3%, GM expansion of 35bps) are still below the firm’s targets (SSSG of 4% GM expansion of 50bps). If ROBINS is able to deliver according to its targets, our earnings estimate would be upgraded by another 3% in FY16.