Commerce

Commerce

 

Though not yet back to actual growth, companies guide to a better SSS QoQ to a contraction of 1.7% YoY in 4Q15F from the -2.6% YoY in 3Q15. This was backed by brighter sentiment as indicated by a rise in the Consumer Confidence Index (CCI) and the stimulus package gifting consumers with a tax deduction for spending of up to Bt15,000 from Dec 25-31. We favor CPALL and GLOBAL, who will report the sector’s best 4Q15F earnings growth YoY. 

 

Industry trend #1: Consumption confidence revived. The Consumer Confidence Index (CCI) has come up for three months in a row, to 76.1 in Nov from 73.4 in Oct, the highest level for seven months, with consumers encouraged by government stimulus packages, plus the start of disbursement to village funds and local government mini investment projects in Oct. 

 

Industry trend #2: Government tax deduction “gift”. The government approved a measure to give taxpayers a Bt15,000 deduction from their taxable income for purchases made from Dec 25-31. The Thai Retailers Association estimates this led to greater spending of ~20% or Bt25bn by 3.2mn taxpayers during this campaign.  

 

We surveyed retailers and they report a positive effect for those who normally enjoy higher spending per customer, have more urban stores, and whose consumers are mid-to-high income. Discretionary item players (HMPRO, ROBINS, GLOBAL) gained more than consumer staples players (BIGC, MAKRO, CPALL). The greater spending encouraged by this seven-day campaign boosted SSS growth in the period from the very low single-digit to double-digit growth. But on a quarter’s basis, by our estimates the campaign added less than 1% to sector SSS growth in 4Q15F.  

 

Some retailers, particularly those who gained sales from this campaign, are cautious and say they expect lower consumer spending in the weeks after the promotion, resulting in slower 1Q16 SSS growth, but a return to normal spending and growth from 2Q16.  

 

Preliminary sector SSS in 4Q15F. BIGC released its actual SSS yesterday – the first in the sector. Its SSS contracted 4.8% YoY in 4Q15, vs. +0.5% YoY in 4Q14 and -5.2% YoY in 3Q15. SSS was negative for its food segment (70% to sales), as lower food prices negated the volume growth in Oct-Nov, but turned to positive in Dec from better sentiment. For its non-food segment, SSS growth remained weak, though improved slightly in Dec. 

 

Based on a preliminary survey, of all players (Figure 1), only CPALL will show SSS growth, primarily because of its popular stamp campaign in 4Q15F. SSS at BIGC, ROBINS, HMPRO, and GLOBAL will continue to contract QoQ, but contraction will be less. Only MAKRO will report a larger contraction QoQ, because of continued store cannibalization.  

 

Top picks: CPALL and GLOBAL. Despite the still fragile consumption environment, we expect sector SSS growth of 2.7% in 2016F, off the low base (-1.3% in 2015F), better consumption sentiment, and the lag effect of the government disbursement of the Bt136bn stimulus package in late 2015 to early 2016 that will boost real consumption. Key risk is weak farm income. Our top picks, which will have the best earnings growth YoY in 4Q15F, are CPALL (better convenience store and cash&carry from store/margin expansion, and lower funding costs) and GLOBAL (margin expansion from private brand and better product mix).