Central Pattana & Robinson Dept Store

Central Pattana & Robinson Dept Store Plc (CPN)

Investment thesis: The outstanding point about both CPN and ROBINS is that they are playing in a market that has few participants of any scale, especially in the provinces where competition is weak. The scope to grow is substantial and both firms are fully equipped to expand aggressively and secure the best locations. We think this is a good time to take positions in the two stocks at this early stage of the growth cycle, so our BUY ratings stand on CPN and ROBINS. However, based on current valuations, potential for upgrades and downside risks, we currently prefer CPN over ROBINS.
Expansion plan check-up: After we crossed-checked the respective expansion plans of CPN and ROBINS, we found some potential upside for CPN, but both upside and downside for ROBINS. With regard to ROBINS’ two undisclosed stores in FY13, if the firm were to go with CPN, the upside would go to CPN, as the latter firm would have more stores than projected. If it were to go with other developers, it would be exposed to some execution risk. ROBINS would do best if it built at its own location—faster break-even and a more optimal capital structure.
Growth profiles intact: Besides their aggressive expansion plans (three new stores a year for CPN and five a year for ROBINS), existing store operations should also expand their respective bottom-lines strongly. CPN's same-store rental growth hit double-digit territory for the first time in 1Q12 and should sustain momentum throughout the year. With regard to ROBINS, we now expect same-store-sales growth of 7-9% for the next several years, stronger than our previous assumption of 6-7%.
Scope for upside ahead: Further upside for CPN could come from the announcement of future projects from FY14 onward, as the consensus (including ourselves) has yet to factor those projects into models. For ROBINS, besides SSSG, margin expansion is likely to beat both its target and the street expectation, thanks to bigger rebates (tied to greater sales volumes) and less promotional discounting (due to good shopping sentiment and weak upcountry competition, which should enable ROBINS to operate without offering deep price discounts).
Outlook
Expansion plan check-up: After we crossed-checked the expansion plans of CPN and ROBINS, we found some potential upside for CPN, but both upside and downside for ROBINS. Next year, ROBINS plans to open five new stores, while CPN confirms three projects. They will go together for only one location next year (Ubon Ratchathani; due to open in 1Q13), whereas CPN will partner with another sister—Central Department Store (CDS)—for two locations (Hat Yai in 3Q13 and Chiangmai in 4Q13), as the targeted customer segments (B+ to A) are a better fit with CDS than with ROBINS (C to B+). That means ROBINS will have to build stores itself under its Lifestyle format (an 8,000sq.m department store and a 15,000sq.m shopping center) or partner with other developers for the remaining four locations. ROBINS guides that it will build Lifestyle format malls at two locations a year and has already announced two locations (Karnchanaburi and Sakonnakorn) for Lifestyle malls next year. That leaves us wondering who will develop its two undisclosed locations? (Perhaps ROBINS will build more Lifestyle malls than it has announced publicly.) The answer to this question will determine whether there is upside or downside to our current model.