Retail Sector

Retail sector
Upper class supported by policy of personal income tax rate cut, but forecast maintained
According to the cabinet’s announcement of personal income tax rate cut, it has
been reduced from 10-37% of 5 brackets to 5-35% of new 7 brackets (as illustrated
on the following page). From the previous range of those with the income of
B150,000-500,000 with 10% tax rate, it would be cut into 2 brackets of B150,000-
300,000 and B300,000-500,000 with the tax rate cut to 5% and 10% respectively,
effective on 2013 tax returns filed in 2014. Although we’re convinced that this is a
positive sentiment which would help boost the purchasing power of the upper class
after the government has earlier helped the lower class with the policy of B300
minimum wage (beneficial for BIGC, CPALL, and MAKRO). The aforementioned
policy would benefit only 2.5 million taxpayers or 27% from the total 9.5 millions
because most of them are in exception due to the income after tax deduction that’s
less than B150,000. Moreover, those who would truly benefit from this policy are
those with over B500,000 of income since they’re qualified in at least 2 brackets of
income tax rate cut, decreasing by 5% for each bracket (B150,000-300,000,
B500,000-750,000 and B1-2m) while other brackets remain unchanged.
Furthermore, the proportion of most taxpayers is mainly from the bracket of
B150,000-500,000 income which is considered the income before tax deduction of
B240,000-590,000 (the minimum tax cut is B90,000 for each). This would help
reduce the tax payment by B7,500/year for the maximum or B625/month. Those
who would save most from the personal income tax cut is the mentioned range of
B7,500 which are those with taxable income of around B300,000-500,000 (salary of
approximately B30,000-50,000/month) or 0-2.5% save of taxable income.
Nevertheless, we’re convinced that those with income in the upper level aren’t so
many in proportion, so the tax rate would be saved by less than B7,500/person in
average. For effects toward companies of the retail-sale sector, BIGC, CPALL, and
MAKRO wouldn’t be affected much since customers are mostly ordinary consumers.
For HMPRO and ROBINS, although they would have more upper-class customers and
gain most benefits from this policy, our forecast wouldn’t change since it’s already in
a high level.

Positive sentiment from policy of personal income tax rate cut, benefiting
HMPRO and ROBINS… but forecast still maintained
We nevertheless believe that the sector’s profit in 2013 would still be outstanding
and grow by 25% YoY due to the economy that tends to be like one in 2012 and the
domestic consumption that’s still vigorous. Combined with the government sector’s
spending that is likely to increase, the same-store sales are projected rise by 6%
YoY. Moreover, the total sales might be boosted by every company’s constant
aggressive branch expansion to increase by 13% YoY (as illustrated on the following
page) of which 40% is from CPALL. Although the earning results of this sector might
not be so outstanding in 1Q13 and would only stabilize from 4Q12 which is the high
season (growing by 10% YoY from 1Q12 with high base since there wouldn’t be any
effect from the minimum wage policy in 1Q12), there’re benefits from the personal
income tax rate that is cut to 23%.

25% continuous growth in 2013 due to aggressive branch
We reiterate “Neutral” for the retail sector. Top picks are HMPRO ([email protected]) due to
the price that is still laggard and the return that always outperforms the market
during the 4th quarters, and we recommend “BUY” for CPALL (FV@B52).