Commerce

Commerce

 

We expect earnings growth of 11% YoY for the sector in 1Q16F thanks to a return to positive SSS growth (+1.5% YoY), plus expansion and wider margin. Our survey reveals that to date in April, the sector’s SSS growth remains positive, relatively unchanged from 1Q16, partly off its two-year low base and partly from better sentiment generated by government stimulus. Our top picks are GLOBAL (best growth in 1Q16F and 2016F) and ROBINS (benefits indirectly from government stimulus in April).  

 

Average 1Q16F profit growth of 11% YoY from a return of positive SSS, store expansion and wider EBIT margin but -7% QoQ from seasonality. SSS growth is estimated at 1.5% YoY (turning from -1.0% in 1Q15 and -1.2% in 4Q15), positive for all players except for BIGC, off the sector’s two-year low base (-1% YoY in 2014-15) and better sentiment generated by active government stimulus. Store numbers will expand by 8% YoY. EBIT margin is poised to pick up by 40bps YoY, mainly on a favorable product mix and more private brand sales, better control over SG&A/sales and higher rental income.  

 

1Q16F highlights. Of all players, GLOBAL will show the best net profit growth (+48% YoY), 

 

and CPALL will be the second best (+18% YoY), while MAKRO will be the weakest (-10% YoY).  

 

 GLOBAL’s net profit is estimated at Bt320mn, +48% YoY. Excluding FX loss of Bt20mn gives a 1Q16F core profit of Bt340mn, +43% YoY. Its growth is backed by: 1) positive SSS (+2% YoY) from better sentiment and more sales volume outpacing softer construction material prices; 2) store expansion; 3) wider gross margin (18.1%, +330bps YoY) from greater proportion of private brands to sales and better margin on steel products (low steel inventory costs at end-2015, with steel price up QoQ) 

 

 CPALL is set to report net profit of Bt4bn, +18% YoY. Behind this is: 1) better convenience store growth with positive SSS (+1.9% YoY), margin and store expansion; 2) lower funding costs from debt refinancing. These will more than offset MAKRO’s weaker earnings.  

 

 HMPRO’s earnings are estimated at Bt849mn, +16% YoY, from positive SSS (+3% YoY), store expansion, and wider EBIT margin (additional rental space in Suvarnabhumi Market Village since mid-2Q15, offsetting weaker gross margin from more Mega Home stores).  

 

 ROBINS’ profit is put at Bt690mn, +12% YoY, from positive SSS (+3% YoY), store expansion, better gross margin (+20bps YoY) from greater proportion of international private brands to sales of 1% in 1Q16F (vs. 0% in 1Q15), and higher equity income (+17% YoY). 

 

 BIGC’s earnings are expected to come in at Bt1.5bn, +7% YoY, with store expansion and wider EBIT margin (additional rental space from the completion of Alcudia renovation and better supply chain management) making up for its negative SSS (-1% YoY).  

 

 MAKRO will be the sector’s weakest with profit of Bt1.4bn, -10% YoY, hit by lower gross margin (off 1Q15’s high base on a change in accounting treatment) and higher SG&A/sales (store expansion and new IT system) amid flat SSS.   

 

Top picks: GLOBAL and ROBINS. We like GLOBAL, the sector’s growth leader in 1Q16F (our forecast is 27% above consensus) and 2016F. We also like ROBINS for the indirect benefit it gets from the government stimulus (tax deduction of Bt15,000 on dining and travel spending in April), as this will bring more traffic to the restaurants in its malls, leading them to spend more in its stores (vs. direct gains on tax deduction of up to Bt15,000 for purchases last Dec).   

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