Robinson Department Store

Robinson Department Store Plc (ROBINS)

3Q12 profit not outstanding due to decreased profitability
and weakness of associated companies
ROBINS’s 3Q12 profit has weakened by 20% QoQ to B380m due to
seasonal effects, only stabilizing from 3Q11. Sales have increased by
20% YoY due to opening of 5 new branches since 2011 until present and
same-store sales that have increased by 4% YoY, which is slightly less
than 1H12 from high base in 3Q11 and the maintenance of branches in
Udon Thani, Chiangmai, and Srinakarin. Nevertheless, this is offset by
the profitability that has decreased in this quarter, as net margin
dropped from 8.6% in 3Q11 to 7.3% because the gross margin has
declined from 24.3% in 3Q11 to 23.6% as a result of discount promotion
to clear the remaining products from excessive production after the flood
crisis. In addition, SG&A has risen by B250m or 22.9% from 21.8% in
3Q11 due to increased expenses of new branches (as 3 more branches
are about to be opened in 4Q12), and the increased minimum wage.
Furthermore, profit sharing from investment in associated companies
(Supersports and Power Buy) has fallen by B27m to B60m as a result of
Power Buy’s deceleration after customers had already rushed on
spending since after the flood in 1Q12.

Profit to thrive notably in 4Q12 due to high season
Although 9M12 profit is considered 68% of FY2012 forecast, 4Q12 profit
tends to hit the year’s record high due to high season of customers’
spending and purchasing power that is projected to return to the high
level after the spending caused by concerns toward the flood recedes.
Moreover, Udon Thani and Chiangmain branches (that have been
shutdown for maintenance) which are 2 branches with high profit would
return for full service, projecting to bring about obviously higher number
of sales. During the rest of year, there would be 3 openings of new
branches in Bang Khae, Surat Thani, and Lampang. In terms of
profitability, it is projected to improve once again since old stock has
already been cleared while new products have been launched to meet
the spending season. Accordingly, 4Q12 profit is projected to improve
QoQ and YoY. We maintain our 2012 profit forecast at B2,072 or 43%
YoY increase.

Use 2013 fair value… upgrade to “HOLD”
We’re convinced that ROBINS’s profit would grow outstandingly at the
late of year. The company is likely to thrive continually due to benefits
from full-year sales of 5 branches in 2012, opening plan for 5 new
branches in 2013 of which 4 of them would be lifestyle centers (self-
managing with less selling but a lot more rental area) with faster break-
even point and payback period, and the plan of opening 5 branches
annually in 5 years from now. Accordingly, the company is believed to
constantly grow at a high level. According to 2013 fair value at B68, we
upgrade our recommendation to “HOLD”.