Robinson Department Store

Robinson Department Store Plc (ROBIN) 

 

ROBINS lags its sector, underperforming by 9% over the past 12 months in response to eight quarters of negative SSS. However, the stock is poised to become more active after the return to SSS growth of 3% in 4Q15F (the sector’s best), off a low base, successful store layout revamp and the stimulus for the final week of the year, which is believed to have added 2% to SSS. With positive SSS and a wider gross margin, we estimate 4Q15F profit of Bt619mn (+4% YoY and +56% QoQ) followed by a good 1Q16F (up YoY and flat QoQ). BUY with mid-2016 DCF PT of Bt48. 

4Q15F earnings estimated at Bt619mn, +4% YoY and +56% QoQ, the best quarter in 2015. Behind the YoY growth is positive same-store sales (SSS) growth, higher gross margin and better rental and equity income that will offset the higher SG&A from the opening of new stores. The QoQ jump is seasonal. It will release results on Feb 18-19. We also expect it to announce a DPS of Bt0.9.  

SSS returning to growth in 4Q15F. SSS grew 3.0% YoY in 4Q15F (vs. -6.1% in 4Q14 and -4.0% in 3Q15), ending the series of contractions seen for the past eight quarters. This puts it on top of its sector in 4Q15F. The good news is that SSS was positive for both Bangkok and provincial stores. Behind this is: 1) last year’s low base; 2) a successful adjustment of store layout to add more products with high sales potential and accommodate a change in tourist profile, i.e. more Chinese and fewer Russians;  3) the benefit from the government measure to give taxpayers a Bt15,000 deduction from their taxable income for purchases made in the period Dec 25-31. We estimate this alone provided SSS growth of ~2% to 4Q15 SSS. At the same time, the company reports that SSS had already turned positive since October.  

Store expansion/renovation maintained. With the opening of two new lifestyle centers in Nonthaburi and Mae Sod in 4Q15, it achieved its goal of four new stores with six store renovations in 2015. In 2016, it plans to add two new stores (Nakorn Sri Thammarat and Lopburi) and renovate six (Rama 9, Chiang Mai, Ratchburi, Trang, Chanthaburi, and Saraburi). The renovations will cut back on dead space and raise rental area/store by 8% and sales/store by above 10%.  

Wider gross margin, higher SG&A. We expect gross margin to expand to 24.9%, +20bps YoY, thanks to better control over marketing campaigns and the introduction of new high-margin international private brands in mid-2Q15. ROBINS targets to raise contribution from high-margin private brands from 10% in 2015 to 15-18% in 2016F via adding more international brands and placing them in all stores. The opening of two new stores in the quarter will push SG&A/sales up to 28.6%, +150bps YoY.  

Better rental and equity income. Rental income is set to grow to Bt665mn (+17% YoY), thanks to three new lifestyle centers added since 4Q14. Equity income (PowerBuy and SuperSport) is looking good at Bt110mn (+15% YoY), boosted by the government stimulus over Dec 25-31.  

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