Robinson Department Store

Robinson Department Store Plc (ROBINS)
Investment thesis
We have trimmed our YE14 target price to Bt64 from Bt65 following our earnings forecast cut. ROBINS’ 2H13 numbers will remain weak, but that weakness appears to be priced in. Although our forecast is the lowest on the street, PERs of 29.3x for FY13 and 21.9x for FY14 look attractive, in our view. Moreover, we expect the 3Q13 income statement to be the nadir for the year; the numbers should improve in 4Q13 onward. As such, now looks like good timing for long-term investors to start accumulating positions. We have, thus, upgraded our rating to BUY from HOLD.
Same-store-sales growth remained slow in 3Q13
Slow domestic consumption, particularly among mid-income demographics, continues to hurt ROBINS. SSSG should be around 5% for 3Q13 and will tend to remain at about that rate through to year-end. Next year should be better. We expect tax refunds from the first-time car buyer scheme to restore spending power to this income group, so ROBINS’ SSSG should resume normal growth of 7-8% in FY14.
Weak 3Q13 gross margin, but likely bottom out
Extra promotional discounts aimed at drumming up sales in the prevailing slow spending environment during the quarter and hard promotions at the Bangrak store before it closed for a three-month facelift (August-October) are likely to have squeezed GM from 24.9% in 2Q13 to 24.0% in 3Q13, which is lower than our previous expectation. We have, thus, cut our GM assumption for FY13 by 13 bps to 24.4%, which consequently reduces our FY13 earnings forecast by 3% to Bt2.06bn. However, we believe weak 3Q13 GM will be the bottom of the year; it should rebound in 4Q13, led by seasonality, and remain strong through 1H14, driven by improving spending power.
Power Buy remains weak, but we see light in the distance
The consumption slowdown and delays to purchases of new TV sets in anticipation of the launch of digital TV broadcasting meant that equity income from Power Buy dived 64% YoY to only Bt29m in 2Q13. Equity income is likely to remain weak through 2H13. However, we expect a strong rebound in Power Buy’s performance in 2Q14, fueled by the launch of digital TV and the 2014 FIFA World Cup.
3Q13 earnings not so bad
Despite weak SSSG and squeezed margin, we still expect ROBINS to post a net profit of Bt444m for 3Q13, up by 16.8% YoY and flat QoQ. This quarter should be the first period of the year for which ROBINS posts YoY profit growth, thanks to low base set by last year, shallower losses at new stores and higher rental income with the opening of new Robinson Lifestyle malls (Sakon Nakhon and Kanchanaburi).