Commerce

Commerce  

 

In a repeat of 1Q15, we expect more stores and wider margin to fuel sector earnings into growth of 15% in 2Q15, beating down the slight drop in same-store sales (SSS). Sentiment is poised to improve in 2H15 as the government spends more and agricultural prices stabilize. Our top picks are CPALL and GLOBAL, which will show the sector’s most outstanding growth in 2Q15.  

2Q15F profit. We estimate average sector net profit growth of 15% YoY, but fall 4% QoQ from seasonality. The situation will be quite similar to 1Q15 in which sector growth will be driven by store expansion (+9% YoY) and EBIT margin improvement (+60bps YoY). These will outpace the slight drop in SSS of 0.1% YoY, battered by weak consumer sentiment caused by economic concerns and lower farm income from weaker agricultural prices. Note that the magnitude of the drop in sector SSS is less severe than the -1.2% in 2Q14 and -1.0% in 1Q15, mainly off last year’s low base (May-June curfew) and the absence of cannibalization that some retailers (ROBINS and GLOBAL) encountered last year.  

2Q15F highlights. Of all players, GLOBAL will show the best earnings growth (+36% YoY), and CPALL will be the second best (+32% YoY). HMPRO and BIGC will be the weakest.  

GLOBAL will report earnings of Bt231mn, +36% YoY. The jump will be backed by 1) better core earnings, with the sector’s best SSS growth (+3% YoY) off last year’s low base from cannibalization and the closure of Surin store, plus continued store expansion and margin improvement from better management of its private brand; 2) Bt11mn extra gain from the partial reversal of the steel inventory loss (Bt21mn) recorded in 1Q15.  

CPALL will report earnings of Bt3bn, +32% YoY. The improvement will be facilitated by better convenience store operations (recovering SSS, store expansion, and margin improvement), more contribution from cash and carry operations (98% in MAKRO), and the drop in all-in funding costs via debt refinancing and no more MAKRO deal fees. 

ROBINS profit is estimated at Bt513mn, +16% YoY: higher rental income from the lifestyle centers will overcome the negative SSS and weaker margin at its department stores.  

MAKRO will report earnings of Bt1.2bn, +14% YoY, due to its aggressive store expansion and wider margin off last year’s low base brought by provisioning for chilled food and better high-margin HoReCa. This will outpace its slight SSS contraction. 

HMPRO will report earnings of Bt821mn, +3% YoY, from store expansion that made up for the drop in SSS from cannibalization and lower margin at the Mega Home format.  

BIGC will report earnings of Bt1.9bn, flat YoY, with a contraction in SSS and minimal store expansion, offset by lower interest expenses after debt repayment. EBIT margin is expected to be stable, as better supply chain management and cost saving plans balance out the higher marketing costs necessitated by greater competition.  

Top picks: CPALL and GLOBAL. We like CPALL and GLOBAL, who will report the best growth in 2Q15F. CPALL is expected to grow the most this year, with better operations at its convenience and cash & carry stores plus lower funding costs; further upside could come from the sale of some of its stake in MAKRO. After being a sector laggard for a year, GLOBAL will be back on the radar with an earnings turnaround from 2Q15F onwards.