Robinson Dept Store

Robinson Dept Store Plc (ROBINS)
 

Investment thesis: We maintain our HOLD rating on ROBINS even though it has underperformed the sector and the SET by 10.5% and 1.1%, respectively, since our rating downgrade on March 15. Expectations of strong earnings growth seem to be priced in—an FY12 PER of 30.6x and PEG of 0.97x—and we don’t see any positive near-term catalysts that might prompt a core earnings forecast upgrade.
SSSG of 6-7% in 1Q12: Management guided at the analyst meeting that SSSG would decelerate from double-digit territory last year to 6-7% in 1Q12 (in line with our estimate), due to the high base comparison set by last year and the new Rama IX store’s cannibalization of Ratchada sales. Stripping out the cannibalization effect, SSSG would be 8-9%, which is still good, in our view. Upcountry stores continue to drive growth—ROBINS is introducing higher-end brands (especially cosmetics) to provincial outlets and staging in-store events to promote specific items.
Lower EBIT trend in mid-term, but tax cut helps: While GM should sustain an uptrend, led by changes to the merchandise mix and fewer hard sales promotions, EBIT margin is expected to decline till FY13, dragged down by operating losses at new stores. Typically, an outlet takes 2-3 years to break even. As such, in terms of store numbers, the proportion of loss-making locations should peak at 29% in FY13 (Figure 2-3), when EBIT margin is expected to bottom out. But net margin should continue to expand with the corporate tax cut from 30% to 23% in 2012 and 20% in 2013.
A banner year for Power Buy and Super Sports: Besides their aggressive expansion plans (Power Buy is add 25 outlets to 100, Super Sports 20 outlets to 90), mega sport events (Euro 2012 soccer and the Olympics) should boost the sales of Power Buy and Super Sports (in which ROBINS holds 40% and 29.2%, respectively). Management guides for 20-30% growth in equity income from these two firms (not counting insurance payouts for flood damages).
Re-adjusted 1Q12 preview: The new guidance on margins and operating expenses caused us to revise up our 1Q12 earnings estimate to Bt466m (up 21% YoY and 52% QoQ) from the Bt434m we forecast last week.