Robinson Department Store

Robinson Department Store Plc (ROBINS)  

 

Investment thesis

The fall in share price following the recent market sell-off has brought ROBINS’ valuation to a very attractive level. The stock currently trades at PERs of 20.2x for FY15 and 17.1x for FY16, versus its long-term mean of 25.5x. Although its department store operation will remain under pressure from weak domestic consumption, ROBINS’ earnings growth rates in FY15-16 are still expected to outperform the SET. Our BUY rating stands.

Weak SSSG but not earnings

Management said during an analyst meeting yesterday that the spending in ROBINS’ stores has remained weak. SSS 3Q-to-date still contracted by around 2-3% and this momentum is likely to continue throughout the year. However, the guidance surprised neither us nor the street. We still maintain our SSSG assumption of -5% for 2H15 and expect ROBINS to deliver strong earnings growth of 20% YoY on the back of a 38% YoY increase in rental income in 2H15.

Another cut in expansion plans to have only a small impact

ROBINS cut the number of new stores for FY16 to two (one Lifestyle Center mall and one in a CPN mall) from three, as it does not expect consumer spending to recover in the near term. For FY17, the firm has yet to set a target but it is unlikely that the rollout number will resume to 4-5 stores a year until the firm sees signs of consumption recovery. The expansion cut trimmed our FY17-18 earnings estimates by 1% and 2%, respectively, and lowered our YE15 target price to Bt55.50 from Bt56.

Renovation plan is on track

Despite the expansion cut, the plans to renovate top-20 stores by YE16 in order to align them with its new store concept (see our report on June 18) remains unchanged. Two stores (Rangsit and Fashion Island) have completed their renovations, while another four stores (Si Racha, Nakhon Si Thammarat, Jungceylon [Phuket] and Trang) are scheduled to complete their refurbishment within 3Q15, just before spending season starts. Management said that sales normally rise more than 10% after renovations, but given the current weak consumption, the growth is expected to be slightly lower. Despite that, we expect to calculate for decent SSSG after the renovations of all stores are finished.

Encouraging private label mix

Another factor to boost profit (through margin expansion) in the medium-to-long run is the increase in the retailer’s proportion of private label sales. Management said the recently-launched exclusive international brands have been well accepted by customers. These exclusive brands are targeted to increase the proportion of private labels from 8% in FY14 to 9% in FY15 and to 15% in FY18.