Retail Sector

Retail sector
Limited impact from weak purchasing power. New store opening boosts income
2H13 consumption is projected to continuously decline from 1H13, as August
consumer price index fell to 79.3 (falling on fifth consecutive month, making the
nine-month lowest). However, there would be limited pressure for retailing
business. Only some companies would be pressed, as most retailers provide
necessary commodities. According to 2009 report (after Subprime Crisis), Thailand's
GDP and consumption declined. ROBINS and BIGC's were pressed worst with
deceleration in same store sales. The previous pressure was similar to current
situation. ROBINS, which sells luxurious goods, would be pressed. 2H13 same store
sales of other companies (BEAUTY, CPALL, HMPRO and MAKRO) would grow at
similar pace to 1H13 at 5%yoy. Moreover, significant income growth is possibly
from the opening of new branches. Companies under our coverage have planned to
open new branches. BICG have planned to open 13 branches (four hypermarkets,
nine supermarkets), and HMPRO have planned to open 10 (eight HMPRO, two Mega
Home) MAKRO and ROBIN have planned to open two branches. BEAUTY and CPALL
have planned to open 37 and 162 branches, respectively. BJC planned to open 20
branches in Vietnam (convenient stores).
- 2H13 remains on track. Baht appreciation benefits CPALL
From the above-mentioned factors, normalized profit in 2H13 would remain good
and improve from 1H13. The profit outlook of retail companies can be divided into
two groups: 1) those with normalized profit making a low in 3Q13 on rainy season
and reviving in 4Q13 on high season (BEAUTY, BIGC, BJC, and ROBINS) and 2)
those with normalized profit growing continuously since 3Q13 and 4Q13 from
aggressive branch expansion (HMPRO) and high season (MAKRO).
For CPALL, the normalized profit would peak in 3Q13 from the stamp promotion
campaign before entering a low season in the forth quarter from the highest SG&A
of a year. However, in terms of net profit, there would be a benefit from the Baht
appreciation (recently at B31/US$, compared with B31.2/US$ at end-2Q13) on the
Dollar debts, which would allow CPALL to book a Fx gain instead of loss (every B1
appreciation will increase the net profit by 20%).
- NEUTRAL. Top picks: BEAUTY, CPALL
Although the sector growth in FY2013 is estimated at 11%, slightly lower than the
market’s performance at 14%, the share prices correction has already reflected the
issue and makes retail stocks prices attractive again. We maintain NEUTRAL and
select BEAUTY and CPALL as top picks for their outstanding growth outlook since
2014 onward.