Industry Update Thursday, April 2, 2015 Retail COMMERCE Rec : NEUTRAL Rebound expected in 2H15 Although the profit has already passed its lowest, it is not likely to rebound until 2H15. Commerce stocks have already undergone correction, so they are currently attractive for long-term investment. Top picks are CPALL and ROBINS. Weak purchasing power depresses profit in 1H15. BEAUTY to grow best 2M15 leading economic figures reflected that consumers' confidence has remained low as a result of weak purchasing power. Commerce companies expected same store sales growth not to rebound in 1Q15 and stay weak in 1H15, likely to drop from our projection of 2-3%yoy to 0-1%yoy (same rate as 2H14). However, it would depress the sector's net profit by only 1%. Since most new branches will be opened in 2H15, 1H15 profit is insignificant, in line with our initial projection. BEAUTY would probably grow best among peers, with YTD same store sales growth of over 30%yoy, in line with the target. Sector Index : 28,515.64 SET Index : 1,525.58 Profit to recover in 2H15 Commerce companies’ earnings are expected to rebound in 2H15 as the economy rebounds and acceleration of government investment starts to pay off. Same store sales growth is expected to rise to 4%yoy. We maintain our earnings forecast, projecting the sector's net profit to grow by 23%. CPALL's (40% of the sector's earnings) net profit is expected to jump by over 30% from weak profit base in 2014 (due to high funding cost); excluding extraordinary items, CPALL's normalized profit is projected to grow by 16%. However, tax restructuring, namely VAT hike in 2H15, needs to be monitored closely. Although the government stated that VAT would be maintained, it is still uncertain and the government may change its mind anytime since total VAT collection has dropped below target. Top picks CPALL, ROBINS Although the share prices have undergone correction, profit of commerce companies is expected to rebound in 2H15. We recommend undervalued stocks. Top picks are CPALL(FV@B53) and ROBINS. CPALL's FY2015 P/E ratio of 27x is close to the sector's average but lower than the previous average (premium). ROBINS's FY2015 P/E ratio of 23.4x is lower than the sector's average and the statistic average. Key Data (Bm) FY: Dec 31 Sales Norm Profit Net Profit PER (x) PBV (x) ROAA % Gross margin % Source : ASP Research FY12A 624,604 29,777 29,464 31.5 7.6 25.5% 18.8% FY13A 735,524 29,549 29,495 31.5 6.8 22.9% 17.2% FY14A 826,589 36,139 36,139 26.4 6.2 24.8% 17.1% FY15F 937,179 45,632 45,632 20.9 5.2 27.0% 17.2% FY16F 1,054,742 57,007 57,007 16.9 4.5 28.8% 17.4% Kawee Manitsupavong License No.: 003974 [email protected] Anuwat Srikajornratkul License No.: 045698 [email protected] This report is a rough translation of one of our Thai-language research products. It is produced primarily with time efficiency in mind, so that English-reading clients can see what the main recommendations are from our Thai-language research team. Given that this is a rough-and-ready translation, Asia Plus Securities pcl cannot be held responsible for translation inaccuracies.) The reports and information contained herein are compiled from public data sources and our analysts' interviews with executives of listed companies. They are presented for informational purposes only and not to be deemed as solicitations to buy or sell any securities. Best attempts have been made to verify information from these vast sources, but we cannot guarantee their accuracy, adequacy, completeness and timeliness. The analyses and comments presented herein are opinions of our analysts and do not necessarily reflect the views of Asia Plus Securities. Industry Update Research Department Same store sales to recover in 2H15 The commerce sector's profit is not likely to rebound significantly in 1H15, but still in line with our forecast. Although 1H15 same store sales growth would drop from our projection of 2-3%yoy to 0-1%yoy (same rate as 2H14), it would depress the sector's net profit by only 1%. We maintain our forecast since a rebound is foreseen in 2H15 after the economy passes its lowest. Economic components would recover e.g. export (as the global economy revives) and government investment (some projects would become more concrete), thus boosting liquidity and reviving investors' confidence. Overall, same store sales growth is projected to rise to 3-4%yoy in 2H15. Watch tax restructuring in 2H15 However, restructure of excise tax (liquors, cigarettes, tutor schools, automotive, etc.), property tax, and especially VAT in 2H15 and 2016 needs to be monitored closely (not included in our forecast yet) since they will adversely affect overall purchasing power; no clear conclusion has been made so far. Although the government stated that VAT would be maintained, it is still uncertain and the government may change its mind anytime since total VAT collection has dropped below target. If VAT is raised gradually by 1% each year from 7% to 8%, it would have no remarkable overall effect. However, larger VAT hike may have significant adverse effect on purchasing power as well as the sector's earnings. If the VAT hike is larger than expected and economic recovery is slower than projected, the commerce sector's earnings (high volume and low margin) would be affected by a larger decline in gross profit margin than same store sales. Initially, we project the sector's FY2015 gross profit margin to rise by 40bp, an increase in every company except HMPRO (down 40bp since lowmargin Mega Home has accounted for larger proportion of HMPRO's profit). Every 10bp increase in gross profit margin from our forecast will boost the sector's profit by 1.4% 2 Industry Update Research Department Same Store Sales Growth vs GDP Growth 10.0% Same Store Sales Growth Same Store Sale s Growth (SSSG) 11.5% 12.0% 8.8% 7.9% 8.0% 6.6% 6.0% 6.5% 3.7% 4.0% 7.9% 8.0% 2.9% 2.5% 2.7% 1.1% 0.9% 0.8% 0.6% 2009 2010 0.1% 2011 2012 0.7% 2014 2013 3Q56 0.6% 4Q56 -2.0% 1Q14 -0.5% -1.0% 3Q14 0.4% 2Q14 6.9% 6.3% 6.6% 6.2% 6.0% 6.1% 6.0% -0.8% 4.8% 4.6% 4Q14 4.1% 2.9% 2.9% -4.0% 2.0% 4.5% 2.2% 1.3% GDP Grow th 0.5% 0.3% 1.1% 0.9%0.8% 0.3% -1.0% -0.8% 0.7% 0.0% 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1H15F 2H15F 0.0% -2.0% Source : ASP Research 5.0% 3.5% 4.0% -2.3% Same Store Sales Grow th 7.8% 6.8% 6.6% 6.2% 6.3% 6.0% 2.3% -0.1% 0.0% 2008 9.3% 9.2% 4.5% 4.0% 2.0% 9.6% 9.2% 10.0% 7.8% 6.0% Source : ASP Research Branches expansion B ranches B ranches Hypermarket 6 180 16 150 12 Super market 10 18 120 12 New Branches end of 2014 10,000 New Branches end of 2013 New Branches end of 2012 New Branches end of 2011 8,000 Branches end of 2011 B ranches 400 600 600 607 546 65 300 78 6,000 90 60 120 30 58 200 12 10 13 8 13 7 8 5 45 52 4,000 7 7 5 5 49 6276 40 100 2,000 130 60 25 0 - B IG C * HM PRO M A KR O 40 R O B IN S C P A LL 0 B E A UT Y B JC Source : ASP Research Key Assumption Rec. BIGC CPALL HMPRO MAKRO ROBINS BEAUTY BJC HOLD BUY BUY HOLD BUY BUY HOLD Closing Price (B) 239.00 40.25 8.15 36.00 48.00 42.50 37.75 Fair Value (B) 240.00 53.00 9.80 42.00 64.00 50.00 42.00 Upside (%) 0.4% 31.7% 20.2% 16.7% 33.3% 17.6% 11.3% EPS EPS Growth (B) (%) 10.0 14% 1.5 32% 0.3 14% 1.3 25% 2.0 17% 1.3 25% 1.3 21% 2015F PER (X) 23.9 27.1 28.3 28.4 23.6 33.9 29.5 PBV Div Yield (X) (%) 4.1 1.2 9.8 2.0 5.8 3.4 12.2 2.7 3.7 2.0 10.9 2.9 3.2 2.1 Source : ASP Research 3
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