Robinson Department Store

Robinson Department Plc (ROBINS)

Investment thesis
We believe now is a good time to take or increase positions in ROBINS. During the last two months, the stock has underperformed the SET by 10% for three major reasons—weak 3Q12 results, deletion from the MSCI Global Small Cap indices and a big lot sale by a major shareholder at a price below the market price. But we do not expect any more negative factors to affect the share price further. ROBINS’ operation rebounded back to normal in 4Q12 and its long-term growth profile remains good, driven by its aggressive expansion plan. We, thus, maintain our BUY rating with a YE12 target price of Bt76.

Selling flows have ended
Selling flows prompted by ROBINS’ deletion from the MSCI Global Small Cap indices have ended; rebalancing took place on Nov 30. ROBINS’ story may similar to that of MAKRO, which was removed from the MSCI Global Small Cap indices six months ago, but was then added to the MSCI Global Standard indices last week. From the announcement through to the effective date, MAKRO fell 14%, due to being deleted from the Small Cap indices, then rose 10% in the two weeks after selling flows ended. With regard to the big lot sale, it doesn’t impact fundamentals and we don’t expect further share price downside—the big-lot sale price of Bt60.50 equals ROBINS’ latest close price.

Operation is already back on-track
Management said sales rebounded strongly in 4Q12-to-date, led by better shopping sentiment during the festive season and the arrival of new collections. The firm is confident that its FY12 SSSG target range of 7-8% will be achieved, implying that SSSG will be 8-10% in 4Q12, up from only 4.1% in 3Q12. Strong sales should also push GM back up in tandem with higher rebate income. ROBINS reaffirms a GM expansion target of 20 bps for FY12, implying that gross margin should fatten by 45 bps YoY to 25.2% in 4Q12. Coupled with a strong rebound in Power Buy sales and the low base effect brought by 4Q11 flooding, we expect 4Q12 profit to jump by 72% YoY and 38% QoQ.

More aggressive expansion?
ROBINS probably won’t pay out all of the Bt1.39bn in dividends received from Power Buy and Super Sports as an extra dividend, as it will want to reserve some cash for its aggressive expansion plan. However, our calculations indicate that the CAPEX necessary for the plan to open five stores a year could be easily financed from fast-increasing operating cash flows and retained cash. As such, we think the firm may want to speed up the expansion by opening more than five stores a year, sooner than the previous plan to open more than five stores a year after FY16. Recall that management eyes having at least 80 stores nationwide, up from 30 currently.