Retail Sector

Retail Sector

Inconclusive and unsettled political situation is affecting earnings in high season

The political turmoil that has started since the beginning of November and has
expanded to other provinces apart from Bangkok still seems inconclusive. It has widely
dulled spending atmosphere, especially during late November-December which is a
high season of the year. Moreover, it is still unclear whether the economic-stimulating
measure of new personal tax structure would be used this year after the government
announced the House dissolution. All these factors would affect the profit in the last
quarter of the year despite being the high season.
 Single companies impacted, but slight effect on sector’s profit
Considering by single company, net profit of each company would be affected
differently, as follows: 1) The companies that will get the most impact are BIGC, BJC,
and ROBINS, especially the last one that sells products that are most vulnerable and
sensitive emotionally and sentimentally. Also, it had also been pressed by competition
after the opening of CPN Chiangmai in November and CPN Hat Yai in December. For
BIGC and BJC, despite selling necessary-for-life products, they have to adopt
aggressive marketing because of the weak purchasing power and rising competition,
resulting in lower profitability. 2) The companies that will get less impact are BEAUTY,
CPALL, HMPRO, and MAKRO. For BEAUTY, although the impact might suppress samestore-
sales growth to only 2-3%, it would be compensated by opening of a lot of new
stores in the rest of the year, reflecting from sales in October and November that could
still meet the target and remain impressive, possibly with the most outstanding growth
in the sector in 4Q13 (around 20-25%yoy). HMPRO has been affected since November,
so same-store-sales would grow to only 3-4% (projected to grow to 5%). CPALL and
MAKRO are likely to be affected least, but their net profit would not be impressive.
CPALL’s profit would decrease qoq due to high interest rate after the acquisition of
MAKRO. Due to the impact, we revise down the sector’s net profit by 1% in 2013 and
2% in 2014. BJC, HMPRO and ROBINS’s profit forecasts are revised down, as shown in
the next page.
 Dull outlook, unlikely to outperform. Downgrade recommendation for
HMPRO, ROBINS, and BJC
Even under the new forecast, retail sector's FY2014 profit would still grow by 21%.
However, current share prices are still high due to high expectation, with FY2014
expected PER at 25x. Moreover, FY2014 earnings are not likely to be very prosperous.
Due to QE-related fund flow, the sector is not likely to outperform or be traded to the
point when PER exceeded 30x as it used to. Moreover, the political unrest needs to be
monitored closely. If the conflicts continue, the sector's earnings would not meet the
target. We reiterate "NEUTRAL" and recommend selective buy, focusing on stocks with
possibly strong earnings. Top pick is CPALL(FV@B53), as it would benefit from the
acquisition of MAKRO from 2014 on. Moreover, CPALL's share price is likely to be
pressed less (Fx rate), so it would have limited downside. We also recommend "BUY"
BEAUTY(FV@B28) for its good growth but still lower share price than peers. We
downgrade recommendation for the following stocks: 1) HMPRO(new [email protected]) from
"BUY" to "HOLD". 2) ROBINS(new [email protected]) from "HOLD" to "SELL", as it is not likely
to rebound significantly from two quarters on. 3) BJC(new FV@B44) from "HOLD" to
"SELL