Retail - Non Cyclical NEUTRAL CCI SSSG (%) 16.0%€¦ · Sector Update, 13 June 2014 Retail - Non...

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Sector Update, 13 June 2014

Retail - Non Cyclical NEUTRAL (from Underweight)

Domestic Consumption Set To Recover

Macro

1

Risks

1

Growth

1

Value

1

After 14 months of declines, CCI turned positive in May for the first time after the military coup triggered a SSSG pickup

-2.0%0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%

50

55

60

65

70

75

80

85

90

1Q

09

2Q

09

3Q

09

4Q

09

1Q

10

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

2Q

14

CCIAvg.SSSG

CCI SSSG (%)

Source: Bank of Thailand, NESDB, RHB estimates

Improving domestic demand drives a SSSG recovery

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

-10%

-5%

0%

5%

10%

15%

20%Domestic Consumption GrowthAvg.SSSG

Source: Bank of Thailand, NESDB, RHB estimates

CP ALL to benefit the most from the recovery

Source: NESDB, RHB estimates

Chalie Kueyen +66 2862 9745

[email protected]

We see early signs of a domestic consumption recovery following the end of the political deadlock. With boosting domestic demand a priority, we see a gradual consumption recovery in 2H14 and a fast recovery in FY15, with the food business set to recover first, followed by non-food. Upgrade the sector to NEUTRAL, with Big C Supercenter, Central Pattana, Home Product Center and Central Pattana as our top BUYS.

End of political deadlock to restart domestic demand. The military’s

attempts to bring peace and long-term stability to the country have been welcomed by Thai people and the business sector. Thus, we see the worst is over for Thailand. However, long-term stability remain challenging and require close monitoring. Since boosting domestic demand is a priority, we expect an improving Consumer Confidence Index (CCI) to boost domestic consumption going forward.

A gradual recovery in 2H14 and a fast recovery in 2015. The pace of

recovery will be in tandem with the country’s 3-phase economic roadmap, which implies a gradual recovery in 2H14 and a fast recovery in 2015. Paying farmers under the rice pledging programme and reducing retail fuel prices toward restructuring energy pricing structure will help lift disposable income and bolster domestic demand in 2H14. Meanwhile, plans to speed up budget disbursement and infrastructure investments will provide the sustainability of the recovery.

Convenience and discount stores to benefit from firs-leg recovery.

Given a plunge in consumption over the past 12 months, government budgets pouring into the economy will take around 3-6 months to create a multiplier to economy. From past experiences, the food business has recovered at first, which then implies for strong recovery for CP ALL (CPALL TB, TRADING BUY, TP: THB46.00) and Siam Makro (MARKO TB, NR) as food section represent 72% and 85% of revenue respective. Central Plaza Hotel (CENTEL TB, BUY, TP: THB38.00) and Minor International (MINT TB, BUY, TP: THB28.50) also have quick service restaurants (QSR) that contribute 50% and 40% of their revenues respectively. Meanwhile, non-food department stores like Central Pattana (CPN TB, BUY, TP: THB62.00), Robinson Department Store (ROBINS TB, BUY, TP: THB63.00), Home Product Center (HMPRO TB, BUY, TP: THB11.00) and Siam Global House (GLOBAL TB, SELL, TP: THB12.50) should benefit from the second leg of economic recovery.

Upgrade to NEUTRAL. Most retailers are tapping into new business

segments and overseas markets, which would incur additional expenses and pressure core earnings during their startup periods in 2013-15. Given their undemanding valuations and the expected gradual recovery, we are NEUTRAL on the sector, and advocate being selective in investments. Factors that will change our view to a bullish one are: i) same-store sales growth (SSSG) of >4% in 2H14, and ii) GDP growth >1.6% in 2014.

Top Picks – BIG C Supercenter, Home Product, Central Pattana. As

food section is 72% in store, CP ALL would benefit most and at first. However, even after taking into account its bullish earnings forecast and 20x EV/EBITDA, it deserve a TRADING BUY. We prefer Big C Supercenter for undemanding valuation and low-end consumption recovery. In the meantime, Home Product Center represent a resilient play, and Central Pattana as a value play.

SSSG/private investment growth SSSG assumption From 2007-2013 2014 2015

BIGC 0.7x 0.5% 2.5% CPALL 2.1x 3.0% 7.0% CPN 1.3x 3.5% 5.5% GLOBAL 1.4x 3.5% 5.5% HMPRO 1.3x 3.0% 5.5% ROBINS 1.4x 2.5% 5.0% MAKRO 1.7x 6.0% 8.0% Average 1.3x 2.2% 5.6%

Retail - Non Cyclical 13 June 2014

See important disclosures at the end of this report 2

Table Of Contents

Upgrade to NEUTRAL from Underweight 3-5

Valuation chart and trend –EV/EBITDA 6-7

Historical SSSG performance 8-9

Gradual recovery in 2H14 and fast recovery in 2015 9-11

- who will recovery first on next round of recovery? 12-14

- Which company should we add for long-term investment? 15-18

Expensive valuation remains 19-20

BIG C Supercenter – discount store trading at deep discount 21-24

CP ALL – undemanding cap upside 25-28

Central Pattana – strongest performance in full turnaround 29-32

Home Product Center – a resilience profile 33-36

Robinson Department Store – the cheapest valuation 37-40



Upgrade to NEUTRAL (from UNDERWEIGHT) – domestic consumption shows signs of recovery

Change in domestic consumption trend

The domestic consumption downtrend, which started in 2012 due to lots of negative

factors – including a collapse in farm prices, rising household debt under the

Government’s populist policy, as well as political protests at end-2013 – is starting to

turn around. The military’s pledge to prioritise economic policies that promote

sustainable long-term economic growth has been well-received and is now helping

reverse the domestic consumption downtrend. However, the current peaceful

situation is still fragile and challenge new Prime Minister (PM) and cabinet team that

is expected to selected in around Aug-2014.

Quick rollout of economic policies

Currently, the military and the business sector are working closely together. The latter

has brainstormed with related ministries to seek solutions to problems. Several

processes have been cut short to address problems bogged down by legal processes

and protests over the past six months. Under the military chief’s command, things are

moving forward quickly. At present, the main concern for both the business sector

and Thai people is maintaining a peaceful environment, rather than the selection

process of the new government and PM. Going forward, we expect the prolonged

peaceful environment to gradually build up consumer confidence and revive domestic

demand, while long-term government policies should trigger a new investment cycle

in the private sector.

Recovery to follow economic roadmap and reform

We believe the consumer and retail sector will begin to recover in tandem with the

military government’s roadmap and reform which attempts to boost the well-being of

the mass low-income group to improve the country’s economy, with a FY14 target

GDP of >2% (vs -0.6% in 1Q14). The roadmap timeline is as follows:

Figure 1: Thailand’s 3-phase reforming proposed by military government

Details Expected timeline

Phase I To bring back peace and to restructure the country May-Aug 2014

Phase II To set up an interim government ,elect a PM and

implement pollcies and plans

Sept 2014-Sept 2015

Phase III To hold an election Nov 2015

Source:, RHB estimates,

Short-term economy may be boosted by:

i) paying a total of THB92bn to farmers under the rice pledging programme

ii) reducing fuel prices in an overhaul of the country’s energy pricing structure

and implementing an oil fund to lower the cost of living and boost disposable

income

Medium-term economy may be boosted by:

i) Private investment growth when the Board of Investment (BOI) starts

approving investments that are held back by the political turmoil for the past

six months

ii) Public investment growth by accelerating the disbursement of public

investment budget that has been delayed for six months

iii) Put forward some infrastructure projects that have passed the Environment

Impact Assessment (EIA)

Beyond the roadmap, we expect consumption among the low-income group to

improve first, which should benefit: i) all food operators including Central Plaza Hotel,

Minor International, MK Restaurant Group (M TB, BUY, TP: THB62.00) and Oishi

Group (OISHI TB, NR), ii) discount store chains like Big C Supercenter and Siam

Makro, and iii) convenience stores such as CP ALL.



Upgrade FY14/15 earnings by 3%/8% to earnings growth of 13%/19%

Our earnings upgrade is based on our key assumptions of: i) a gradual consumption

recovery in 2H14, and ii) a fast recovery in 2015. SSSG is targeted at 2.2% for 2014

and 5.5% for 2015 (up from 2%/3% in previous forecasts respectively), reflecting an

SSSG/private investment growth of 1.3x. The SSSG assumptions by each company

are as below:

Figure 2: SSSG/private investment growth

SSSG/private investment

growth

SSSG Assumption

From 2007-2013 2014 2015

BIGC 0.7x 0.5% 2.5%

CPALL 2.1x 3.0% 7.0%

CPN 1.3x 3.5% 5.5%

GLOBAL 1.4x 3.5% 5.5%

HMPRO 1.3x 3.0% 5.5%

ROBINS 1.4x 2.5% 5.0%

MAKRO 1.7x 6.0% 8.0%

Simple Average 1.3x 2.2% 5.6%

Source: Company data, RHB estimates, NESDB

1% change in SSSG to boost net profit by around 2.5-3%

In our sensitivity analysis, a 1% change in SSSG will lead to a 2-3% change in

earnings on average. However, the companies’ ability to grow SSSG differs between

the players and according to the types of retailers they are. Discount stores (eg Big C

Supercenter) which face stiff competition and a near saturated market typically have

SSSG below private investment growth. However, CP ALL has the highest ability to

grow SSSG at more than 2.1x over private investment growth, followed by Siam

Makro at 1.7x.

Figure 3: Changes to earnings forecasts

Old New % net profit Net profit Old New

Net profit (THBm) Net profit (THBm) forecast change growth SSSG SSSG

'14F '15F '14F '15F '14F '15F '14F '15F '14F '15F '14F '15F

BIGC 6,957 7,304 7,210 7,750 3.6% 6.1% 3% 7.5% 0.0% 1.5% 0.5% 2.5%

CPALL 11,760 12,387 12,320 15,230 4.8% 23.0% 17% 23.6% 3.0% 5.0% 4.0% 7.0%

CPN 6,776 7,627 6,988 8,246 3.1% 8.1% 11% 18.0% 2.0% 3.0% 3.5% 5.5%

GLOBAL 1,047 1,167 1,047 1,275 0.0% 9.3% 18% 21.8% -2.0% 2.0% 3.5% 5.5%

HMPRO 3,480 4,065 3,527 4,195 1.4% 3.2% 15% 18.9% 2.0% 3.0% 3.0% 5.5%

ROBINS 2,134 2,454 2,204 2,624 3.3% 6.9% 11% 19.1% 0.0% 2.0% 2.0% 4.0%

Source: Company data, RHB estimates, NESDB

Figure 4: Target price changes

Old New % chg Valuation method

In target price 2-yr forward EV/EBITDA

BIGC 195 225 +15% 12.5x

CPALL 34 48 +30% 20.0x

CPN 55 62 +13% 15.0x

GLOBAL 10.3 12.5 +21% 20.0x

HMPRO 9.5 11 +15% 15.0x

ROBINS 50 65 +29% 12.5x

Source: RHB estimates

Normally, retailers are able to grow SSSG at around 1.3x of private investment growth, CP ALL and Siam Makro are top performers at 2.1x/1.7x respectively

We upgrade FY14/15 earnings by 3%/8% and TP by 18% (CP ALL’s earnings are revised upwards the most). FY14/15 earnings are expected to grow 13%/19% respectively



CP ALL – demanding valuations cap upside. CP ALL should benefit substantially

from the first leg of recovery in domestic consumption, as around 72% of its products

are found in the food section of its stores. We assume its SSSG to pick up strongly

from -1% in 1Q14 to 3.5% in FY14 and by 7% in FY15. Furthermore, as costs

related to the acquisition of Siam Makro will be fully amortised within 2014, lower

operation costs should propel its net profit in FY15. However, even taking into

account its bullish earnings assumption, CP ALL’s forward valuation is not cheap with

EV/EBITDA of 21x/18x for FY14/15. Thus, the company is rated as a Trading BUY,

with a THB48.00 TP, based on 2-yr forward EV/EBITDA of 20x.

Big C Supercenter – cheaper-than-peer valuation. We like Big C Supercenter as it

is set to benefit from the first-leg consumption recovery in the low-end segment.

Given stiff competition in discount stores, the company seems to be more inferior

than its competitors. However, the stock’s cheaper-than-peer valuation (assuming

SSSG of only 0.5%/2.5% and earnings growth of 3%/7% for FY14/15 respectively)

and its ability to lower debt to enhance value prompted us to upgrade the stock to

BUY from Trading Buy. Our THB225 TP assumes 2-year forward EV/EBITDA of

12.5x, which is below the multiples of top-tier retailers’ like CP ALL and Central

Pattana by more than 35%.

Home Product Center – a resilient profile. Despite weak domestic consumption,

Home Product Center is the only company that has been able to maintain positive

SSSG and resilient earnings, given its ability to increase the proportion of house

brand products in its stores to boost its margins consistently. Despite the

continuously weak consumption and high operating cost pressure, its 1Q14 earnings

accounted for 26% of our full-year forecast. As the home improvement segment is

expected to recover at a slower pace than convenience stores, we apply a 2-year

forward EV/EBITDA multiple of 15x (vs 20x for CP ALL), and derive a TP of

THB11.00.

Central Pattana, Robinson Department Store to benefit from second leg of

consumption recovery. We believe Central Pattana will benefit the most once the

Chirathivat family maintains an aggressive strategy to grow its retail business.

Central Pattana also acts as a landlord – it develops department stores for brands

like Central and Robinson and manages the rental space and shopping centres

within the department stores. Its business model is safe and sound. While weakened

rental SSSG has pressured the company’s earnings outlook, we view this as a short-

term impact caused mainly by weak income from the Central World (CTW) branch,

whose net leasable area (NLA) accounts for 13-15% of the company’s total NLA, and

most of its revenue is derived from revenue-sharing clauses in contracts with its

occupants. Furthermore, more than half of its existing 24 malls have been able to

increase rental rates by around 10%, while around half are able to maintain rental

rates. Thus, we expect Central Pattana’s revenue to pick up once operations at CTW

mall improve.

Figure 5: Financial and valuation summary

Mkt cap M kt P rice FV (T H B ) BV ROE P/BV(x) Absolute Rec.

USD m 11- Jun- 14 (THB) '14F '15F '14F '15F '14F '14F '14F '15F '14F '15F '14F '15F 1M 3M 1Y YTD

Retail

BIGC 5,260 206.0 225 9.0 9.4 3.0 7.5 50.5 21 23 22 13 12 4.2 3.7 14 16 7 15 BUY

CPALL 12,590 46.0 48.0 1.4 1.7 9.7 23.6 4.9 36 34 27 21 19 10.7 7.4 8 13 17 10 TRANDING BUY

CPN 6,739 48.0 62.0 1.6 1.8 15.3 18.0 9.2 20 31 26 17 14 5.2 4.7 11 11 8 16 BUY

GLOBAL 1,268 13.4 12.5 0.3 0.4 1.0 21.9 4.2 11 39 32 21 17 3.2 3.0 4 -6 -33 -2 SELL

HMPRO 3,190 9.45 11.0 0.3 0.4 0.6 18.9 1.3 27 29 25 14 13 7.1 6.1 13 10 -13 12 BUY

MAKRO 5,655 36.5 n.a. 0.9 1.1 14.6 18.0 2.3 44 39 33 22 18 11.1 11.5 11 14 -2 25 NR

ROBINS 1,993 58.25 65.0 2.0 2.4 10.8 19.1 12.8 16 29 25 14 12 5.2 4.1 17 10 -11 19 BUY

Hospitality

MINT 3,420 27.5 28.5 1.2 1.5 16.5 22.6 7.7 19.0 22 18 13 11.7 3.7 3.3 15 12 18 30 BUY

CENTEL 1,445 34.75 38.0 1.1 1.4 11.8 23.6 8.8 14.5 30 25 13 11.7 3.9 3.7 20 9 5 24 BUY

Price change (%) EP S (T H B ) P/E(x) EPS Gwt ( %) EV/EBITDA(x)

Source: Company data, RHB estimates

Remark: Siam Makro’s valuation comes from Bloomberg consensus numbers



Figure 6: Regional comparison

Mkt Cap EV/EBITDA (X) P/E (X) ROE Absolute perf

USDm '14F '15F '14F '15F '14F 1M 3M 12M YTD

CPALL TB Equity CP ALL PCL 12,458 18.8 16.2 31.4 24.5 32.7 6.51 7.14 11.11 9.44

BIGC TB Equity BIG C SUPERCENTER PCL 5,238 13.8 12.5 22.2 23.4 27.4 14.44 12.57 7.85 13.49

MAKRO TB Equity SIAM MAKRO 5,655 22.1 18.4 38.8 32.9 44.0 11.5 14.1 1.9- 24.9

GLOBAL TB Equity SIAM GLOBAL 1,268 20.8 17.3 39.0 32.0 10.7 3.9 5.7- 33.4- 2.2-

HMPRO TB Equity HOME PRODUCT 3,190 13.5 12.5 29.4 24.7 27.0 12.5 10.4 13.5- 11.6

ROBINS TB Equity ROBINSON DEPARTMENT STORE 1,993 13.8 11.9 29.4 24.7 16.3 16.5 9.9 10.8- 19.2

CPN TB Equity CENTRAL PATTANA 6,739 16.9 14.1 30.8 26.1 20.3 11.0 11.1 8.0 15.7

Convenience Store

3382 JP Equity SEVEN & I HOLDINGS CO LTD 35,630 7.1 6.7 19.0 17.3 8.8 1.61 6.86 27.37 1.16-

8028 JP Equity FAMILYMART CO LTD 4,147 5.2 4.8 15.9 16.4 9.2 1.41 2.92- 12.48 8.98-

2651 JP Equity LAWSON INC 7,187 6.2 5.9 18.5 17.1 16.1 0.41- 6.10 5.34 5.82-

Discount Store

MAPI IJ Equity MITRA ADIPERKASA TBK PT 1,208 7.8 14.1 28.9 N.A. 6.3 1.8 7.1 11.1 9.4

RALS IJ Equity RAMAYANA LESTARI SENTOSA PT 759 7.6 9.4 22.7 N.A. 13.2 6.5 15.6 26.4 11.4

Department Store

MPPA IJ Equity MATAHARI PUTRA PRIMA TBK PT 1,486 20.7 15.9 44.2 32.8 11.92 18.9 41.6 31.9 80.4

PRA SP Equity PARKSON RETAIL ASIA LTD 477 6.4 5.1 16.0 13.1 15.16 2.3 4.2- 38.9- 6.2-

3368 HK Equity PARKSON RETAIL GROUP LTD 775 4.2 4.0 13.3 13.1 6.33 3.1- 4.0- 33.9- 9.1-

PKS MK Equity PARKSON HOLDINGS BHD 765 4.6 4.4 15.6 13.8 5.13 18.9- 7.3- 34.7- 9.0-

3086 JP Equity J FRONT RETAILING CO LTD 3,653 9.6 9.2 17.6 16.2 8.87 1.4- 6.0 4.2 12.1-

8233 JP Equity TAKASHIMAYA CO LTD 3,108 6.6 6.5 16.1 15.8 5.44 3.2- 6.2 8.6 8.1- Source: RHB estimates, Bloomberg

Figure 7: Valuation trends for Central Plaza Hotel and Minor International (EV/EBITDA)

CENTEL - forward EV/EBITDA MINT - Forward EV/EBITDA

0

2

4

6

8

10

12

14

16

18

EV/EBITDA (x)

Mean = 12x

-1SD = 10x

+1SD = 14x

0

2

4

6

8

10

12

14

16

18

EV/EBITDA (x)

+1SD = 15x

-1SD = 11x

Mean = 13x

Source: RHB estimates, Bloomberg



Figure 7 (cont’): Valuation trends for retailers (EV/EBITDA)

ROBINS CPALL

BIGC MAKRO

GLOBAL HMPRO

CPN Avg. retailer

0

2

4

6

8

10

12

14

16

18

EV/EBITDA (x)

Mean = 15x

-1SD = 11x

+1SD = 19x

0

5

10

15

20

25

EV/EBITDA (x)

Mean = 7x

-1SD = 5.5x

+1SD = 8.5x

bloodshed red-shirt protest

Mean = 15.2x

+1SD = 20 4x

-1SD = 10.0x

0

2

4

6

8

10

12

14

16

18

20

EV/EBITDA (x)

Mean = 7.5x

-1SD = 6.5x

+1SD = 8.5x

Mean = 14x

-1SD = 10x

+1SD = 18x

0

5

10

15

20

25

30

35

EV/EBITDA (x)

Mean = 7.5x

-1SD =

+1SD = 8.5x

+1SD = 22.5x

EV/EBITDA (x)

Mean = 7.5x

-1SD = 6.5x

+1SD = 8.5x Mean = 16x

-1SD = 9.5x

0

5

10

15

20

25

Aug

-10

Nov-1

0

Fe

b-1

1

Ma

y-11

Sep

-11

Dec-1

1

Ma

r-1

2

Jul-1

2

Oct-

12

Jan-1

3

Apr-

13

Aug

-13

Nov-1

3

Fe

b-1

4

Jun-1

4

EV/EBITDA (x)

+1SD = 23x

EV/EBITDA (x)

Mean = 6.2x

-1SD = 5.7x

+1SD = 6.7x

Mean = 18x

-1SD = 13x

0

2

4

6

8

10

12

14

16

EV/EBITDA (x)

Mean = 6x

-1SD = x

+1SD = x

Mean = 11.5x

+1SD = 4 x

-1SD = 8.5x

0

5

10

15

20

25

EV/EBITDA (x)

+1SD = 19.2x

Mean = 15x

-1SD = 11.2x

+1SD = 12.7x

Mean = 11x

-1SD = 9.3x

0

2

4

6

8

10

12

14

16

18

20

EV/EBITDA (x)

+1SD = 19x

Mean = 16x

-1SD = 13x

+1SD = 7.7x

Mean = 7x

-1SD = 6.3x

Source: RHB estimates and Bloomberg



Figure 8: Performance of SSSG and private investment growth

SSSG of Robinson Department Store, Siam Global House and Big C Supercenter was below private

investment growth in recent period

ROBINS CPALL

CPN HMPRO

GLOBAL MAKRO

BIGC Average

-10%

-5%

0%

5%

10%

15%

20%1

Q0

9

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

SSSG

Private investment

growth -10%

-5%

0%

5%

10%

15%

20%

25%

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

SSSG

Private investment

growth

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

SSSG

Private investment

growth

-10%

-5%

0%

5%

10%

15%

20%

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

SSSG

Private investment

growth

-10%

-5%

0%

5%

10%

15%

20%

25%

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

SSSG

Private investment

growth -10%

-5%

0%

5%

10%

15%

20%

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

SSSG

Private investment

growth

-10%

-5%

0%

5%

10%

15%

20%

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

SSSG

Private investment

growth

-10%

-5%

0%

5%

10%

15%

20%

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

SSSG

Private investment

growth

Source: Company data,, RHB estimates

US subprime



Figure 9: Historical performance of SSSG and total store sales growth (TSSG) by company

ROBINS CPALL

CPN HMPRO

GLOBAL MAKRO

BIGC Average

-5%

0%

5%

10%

15%

20%

25%

30%

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

SSSG

TSSG

-5%

0%

5%

10%

15%

20%

25%

30%

35%

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

SSSG

TSSG

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

SSSG

TSSG

-10%

-5%

0%

5%

10%

15%

20%

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

SSSG

TSSG

-10%

0%

10%

20%

30%

40%

50%

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

SSSG

TSSG

-5%

0%

5%

10%

15%

20%

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

SSSG

TSSG

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

SSSG

TSSG

-5%

0%

5%

10%

15%

20%

25%

30%

35%

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

SSSG

TSSG


US subprime



Recovery seen to be gradual in 2H14

Although we think the worst is over for the consumer sector, we expect a gradual

recovery in 2H14 as consumption has plunged more than it did in the past ie during

the US subprime crisis in 2008-2009, bloodshed protests in May 2010 and the

massive flooding in Nov 2011. Rising household debt under the populist policy,

weakening economy and a decline in several agricultural product prices have

reduced disposable income and curb spending ability since 2013. Average SSSG,

which usually grows at a rate of 1.3x of private investment growth (or >2.0x of GDP),

has fallen. Rice farmers were paid via the rice pledging programme and the end of

the prolonged political protests triggered a reversal of consumer confidence. This

implies that SSSG could pick up going forward.

Figure 10 : CCI and SSSG for retailers

Source: Bank of Thailand, RHB estimates

Remark: Avg. SSSG for retailers including CPALL, BIGC, MAKRO, HMPRO, ROBINS

CCI and SSSG to improve from a low base

We do not expect to see a V-shaped recovery this time, given the country’s

persistently high household debt. The budget for the rice pledging scheme, which

was worth THB92bn, was allocated for and paid to farmers – which would help

improve the agricultural sector’s supply chain and create a chain reaction on several

industries. However, it may take 3-6 months for the injection to effectively create a

multiplier in the economy. Furthermore, while there is a need to improve long-term

sustainability in other agricultural products ie rubber and palm oil to promote

alternative energy, this will take a longer time. Thus, we see consumption to recover

gradually from a low base.

Figure 11: Household debt

40%

45%

50%

55%

60%

65%

70%

75%

80%

85%

0

2,000

4,000

6,000

8,000

10,000

12,000

1Q

06

3Q

06

2Q

07

4Q

07

2Q

08

4Q

08

2Q

09

4Q

09

2Q

10

4Q

10

2Q

11

4Q

11

2Q

12

4Q

12

2Q

13

4Q

13

HH

de

bt

as

% o

f G

DP

HH

de

bt

(TH

Bb

n)

HH debt

HH debt/GDP

Source: Bank of Thailand, RHB estimates

US crisis

Massive flooding Bloodshed

protest



Fast consumption recovery from 2015 onwards

While paying famers under the rice pledging programme will help boost short-term

domestic demand, key drivers for long-term recovery in the sector would be:

i. Push for infrastructure projects. The military government has proposed

policies to speed up infrastructure projects to support long-term sustainability

in economic growth. These include the dual railway track, 4-lane roads,

water management system, electric train in downtown, and high speed train

that connects Indochina for the Asean Economic Community (AEC) border

trade. As these infrastructure projects mainly focus on the upcountry, we

expect rising urbanisation in the longer term. However, execution risk

especially in the preliminary phase of the transition is the key risk for the

medium term in our view.

ii. Auto loan repayment helps reduce household debt. Tax incentives for

first-time car buyers in 2012 led to a rise in household debt/GDP to 80%

currently from 75% in 2012. Basically, auto loan or hire purchase has a term

of 4-5 years. An auto loan that starts in 2H12 will be repaid by around 20-

25% per year. This implies that around 30-40% of auto loans will be reduced

in FY15. Repayment of auto loans will gradually reduce household debt

burden and help increase disposable income.

iii. Fast declining household debt at SFIs. In fact, household debt has started

to decline over the past three quarters, particularly household debt in non-

commercial banks, including the Government’s special financial institutions

(SFIs) and non-banks. Household debt in non-commercial banks mainly

comes from the middle- to low-income group and represents 57% of the

country’s household debt Hence, a further decline in household debt at SFIs

and potential economic growth in the upcountry will further reduce

household debt going forward.

iv. Low inflation to support recovery. Moderate inflation of around 2.5%

should help policy makers manage demand/supply in the market and

facilitate a smoother consumer recovery.

Figure 12: Growth in household debt by type of debtor has fallen for three straight quarters

Figure 13: Household debt breakdown by type of debtor – household debt among middle- to low-income group at non-commercial banks is around 57% of the country’s household debt

0%

5%

10%

15%

20%

25%

1Q

08

2Q

08

3Q

08

4Q

08

1Q

09

2Q

09

3Q

09

4Q

09

1Q

10

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12

2Q

12

3Q

12

4Q

12

1Q

13

2Q

13

3Q

13

4Q

13

1Q

14

Commercial bank

SFI & non banks

Total

43%

29%

15%

13%

SFIs

Co-op

Others

Commercial banks

Source: Bank of Thailand, RHB estimates Source: Bank of Thailand, RHB estimates



Who will recover first?

Food operators should recover first (Central Plaza Hotel, Minor International).

Figures 14-17 show that SSSG (dated back to 2006) recovered relatively fast after

pulling back sharply to nearly zero. Specifically, SSSG at food chain operators such

as Central Plaza Hotel and Minor International is expected to recover first and

quickly, followed by CP ALL and Home Product Center.

Since 2006, four occasions that had hurt retailers and food chain operators’ SSSG

are: i) the military coup in Sept 2006, ii) the US sub-prime crisis in 2008-2009, iii) the

massive flooding in Oct 2011, and iv) the weakening economy and rising household

debt in 2013. From the previous events, we conclude that:

i) Siam Makro is highly resilient – its SSSG is relatively stable and has

performed even better in the current crisis

ii) CP ALL’s SSSG is also resilient – during the 2013 cycle, its SSSG

recovered quickly once the CCI improved

iii) Home Product Center and Robinson Department Store’s SSSG were highly

volatile. Note that Home Product Center fared better

iv) SSSG at food chains such as Central Plaza Hotel and Minor International

was the most volatile, as it turned negative in every crisis, but recovered

quickly once the CCI started to improve

Figure 14: SSSG of Minor International, Central Plaza Hotel

Figure 15: SSSG of Siam Makro, CP ALL, Big C Supercenter

Source: Company data, RHB estimates Source: Company data, RHB estimates

Figure 16: SSSG of Robinson Department Store, Home Product Center

Figure 17: SSSG of Central Pattana


US subprime US subprime

US subprime

US subprime

Bloodshed protest

Bloodshed protest



Prefer Central Plaza Hotel to Minor International. Minor International’s SSSG had

been better than that of Central Plaza Hotel in the past, but this should be reversed

this time. The quick service restaurant (QSR) business accounts for 40-45% of

Central Plaza Hotel’s net profit, which is larger than Minor International’s 30% Thus,

a recovery in SSSG should have a greater impact on CENTEL’s bottomline than

MINT. In addition, Central Plaza Hotel’s QSR is entirely focused on Thailand, while

Minor International has diversified its QSR business to the overseas market in the

past three years. Currently, Minor International’s QSR business in Thailand accounts

for 68% of its revenue, with the remaining 32% contributed by overseas.

Figure 18: Central Plaza Hotel’s business profile


Figure 19: Minor International’s business profile


In addition, given the country’s attempts to promote its tourism industry previously

damaged by political turmoil as well as the potential lifting of curfews in key tourism

destinations, we think Central Plaza Hotel and Minor International should ride on the

hotel business recovery. As the former’s hotel revenue is more geared towards

Thailand, and given the same valuation of 12.2x EV/EBITDA, we prefer Central Plaza

Hotel to Minor International.

Central Plaza Hotel’s food business accounts for 45% of its net profit

Minor International’s food business accounts for 30% of its net profit

Hotel 55%

Food 45%

Mister Donut 20%

Auntie Anne's

8%

KFC 54%

Ottoya 10%

Others 8 %

Hotel 67%

Restaurant 30%

Retail trading

3 %

Thailand 68%

Overseas

32%

Swensen\s

14%

Pizza 24%

Thai Express

18% Sizzler 14%

Others 30%

% Contribution to net profit

Food contribution by brand

% Contribution to net profit

Food business profile

Food contribution by brand



CP ALL, Siam Makro, Big C Supercenter to benefit the most from consumption

recovery. With consumption expected to recover gradually in 2H14, we think

retailers with product portfolios geared towards the food sector should be major

beneficiaries. CP ALL’s food section (including ready-to-eat products, processed food

and beverage) represents 72% of its revenue. Since the food section has a higher

margin (26%) vs non-food (24.7%), a recovery in the food business will help boost

revenue and margin. Siam Makro, which provides food catering services for

wholesalers and the “Horeca” segment (hotels, restaurants, caterers), should also

benefit from the recovery and see stronger earnings. Meanwhile, Big C Supercenter,

whose product portfolio is geared towards dry grocery, should also recover as

consumption among the low-income group picks up.

Figure 20: CP ALL, Siam Makro, Big C Supercenter’s product portfolio breakdown

143

32 12

-

82

59

56

13

47

-

50

100

150

200

250

CPALL MAKRO BIGC

Non-food Dry food Fresh food

(THBbn)

72%

28%

25%

65%

10%

10%

50%

40%


Remark: data as of 2013

Siam Makro and CP ALL’s product portfolios are geared towards food, which represents 72% and 85% of their respective revenue



Which company should we add for long-term investment?

Building platform for next growth. Although we expect domestic demand to

recover, we think the pace of recovery may not be as strong as in the past, with

double-digit SSSG expected in the first-leg recovery. This is because the retail

business, for some segments, is almost saturated and there is risk of cannibalisation

in further expansion. At this level, we think CP ALL and Siam Makro stand out in

terms of creating the next growth frontier. However, the costs related to CP ALL’s

acquisition of Siam Makro are very high and may outweigh the synergy benefits in

the short and medium term. We think CP ALL will take around three years after the

acquisition to reduce its debt burden and a strong recovery is expected in 2016.

Figure 21: Retailers’ expansion strategies – accelerating expansion

Historical 3-year strategy Next strategy

BIGC Discount store Expanding to small format store to beat Tesco Lotus No plan to go overseas, but rather sharing

“BIGC” royalty fee for Casino Group using

BIGC brand in Vietnam

CPALL Convenient store Aggressive expansion outlook with >650 outlets/year (up

from 500 outlets/year previously), acquired Siam Makro

Unable to grow 7-11 outlets outside of

Thailand, plans to use Siam Makro to venture

into overseas market in Vietnam

MAKRO Wholesales discount store More aggressive expansion of +6-7 stores after becoming

CP ALL’s subsidiary

More aggressive investment in Vietnam

should start from 2016 onwards

GLOBAL Construction material Its aggressive expansion plan did not pan out well Go overseas with Siam Cement Group (SCG)

targeting Indonesia and Vietnam

HMPRO Home improvement More aggressive expansion and expanding into new

segments to compete with GLOBAL

A new model in the construction segment

“Mega Home”, to open five new stores in

Malaysia within 2-3 years

ROBINS Department store Aggressive expansion in the upcountry, and overseas

expansion in Vietnam and Malaysia

Less aggressive in Thailand with three stores

p.a., two malls/year in Vietnam

CPN Retail property More aggressive expansion of mega malls, expanding

overseas

Capitalising on Thailand’s prime location,

opened its first overseas mall in Malaysia ,

with the next one planned in Vietnam


What retailers do during the past 3 years?

Accelerated expansion in 2011-2013. We think the retail business has changed

drastically over the past 2-3 years. Retailers have started to expand new store

formats to compete with existing competitors and to leverage expertise. Despite

weakened consumption, all retailers have aggressively expanded their branch outlets

during 2012-2013.

Historical expansion geared towards northeast region. The retail sector’s

expansion has been geared towards the northeast region. Excluding Tesco, around

40% of new expansion over the past three years took place in the northeast, with

expansion in Bangkok started to slow in 2013. Meanwhile, expansion in the eastern

region has been slower than other parts of Thailand, which is a contrast to high

household income levels in the area (15% above household income levels in

Bangkok).

The discount store sector is the most competitive segment. Tesco, Big C Supercenter and Siam Makro’s expansion is geared towards the smaller store type



Figure 22: Net outlets in 2011-2013

Location

Number of new outlet (2011-2013) Bangkok North Northeast East Central South

BIGC 46/291* 6 2 2 4 3 2

Tesco 74/857** n.a. n.a. n.a. n.a. n.a. n.a.

HMPRO 24 3 2 6 2 7 4

MAKRO 21 3 3 6 1 2 3

ROBINS 13 3 3 3 3 1

GLOBAL 17 - 6 11 - - -

Total 90 (ex-Tesco) 15 16 38 7 15 10


*46 stores in big format (31 outlet for Carrefour), 291 in small format

**74 in big format, 857 in small format

Remark: BIGC acquired Carrefour in 2010 and added 31 new outlets, some outlets were closed

Figure 23: Number of population by geography

Number of

population

Density

(person/sq km)

Household income

THB/year

Northern 11.9 70 91,922

Central 6.7 132 225,501

Bangkok + vicinity 10.1 1,297 359,796

Northeastern 21.4 127 67,888

Eastern 4.4 122 414,568

Southern 8.7 122 121,914

The whole Kingdom 63.2 n.a. 183,803

Source: National Statistic Office , Office of the National Economic and Social Development Board, Office

of the Prime Minister (data as of 2012)

Big C Supercenter’s aggressive expansion to defend market share from Tesco.

Big C Supercenter scaled down expansion of big-format stores to focus on small-

format stores. We think this is a reaction to Tesco’s expansion in new store format

and its subsequent huge profit gains in 2009-2010. We think Big C Supercenter’s

expansion move falls behind Tesco by three years and may serve only to defend its

market share in the business. Note that Tesco (a non-listed company) is the largest

discount store in Thailand, with its turnover 2x larger than that of Big C Supercenter.

Siam Makro accelerates expansion by leveraging its expertise in niched

segment. The company’s success as a food caterer for the hotel and restaurant

segment (Horega) has boosted its confidence to accelerate expansion by opening

five stores in 2012 and seven stores in 2013. It is also expanding a new store format

– Siam Frozen stores which focus more on the food section. We think Siam Makro’s

ability to leverage its key expertise in the niche segment is its expansion strategy,

which continues to add value to the company.

Home Product Center accelerates expansion to gain market share. Home

Product Center started aggressive expansion in 2012 and turned even more

aggressive in 2013. We think the company’s expansion partly reflects its attempt to

expand its footprint to compete with new competitors, such as: i.) Siam Global

House, which emerged stronger after a partnership with SCG, and ii) Thai Watsadu

(a non-listed company under the Chirathivat family).



Figure 24: Historical expansion by retailer in discount store segment

Number of branch New expansion Remark

2011 2012 2013

2011 2012 2013

Discount store - strong competition between BIGC and Tesco

BIGC Extra – big format 15 16 16

15 1 0

Slow expansion in big-store format

BIGC Supercenter – big format 92 96 101

21 4 5 Expansion geared towards small

BIGC Jumbo – new format 1 1 2

1 0 1 format in order to compete with

BIGC Market –net format 12 18 30

10 6 12 Tesco and Siam Makro

Mini BIGC – small outlet 50 126 278

35 76 152 59 stores in Bangkok, 90 stores outside Bangkok

Tesco Lotus – big format 99 116 109

9 17 -7 Slow expansion in big-store format

Tesco Extra – big format 0 6 12

0 6 6

Tesco Dept. store – big format 0 24 36

0 24 12

Tesco Market 130 165 182

47 35 17

Tesco Express 755 1,071 1304

209 316 233 Started expansion in small format in 2009-2010

Discount store – cash and carry segment for wholesale

MAKRO 52 57 65

4 5 7 More aggressive in 2012-2013

Siam Frozen – sub-brand - 5 5

- 5 - New format focuses on food only

Source: RHB estimates

Figure 25: Historical expansion by retailer in discretion segment – expansion geared towards upcountry

2011 2012 2013

2011 2012 2013 Remark

HMPRO 45 53 64 +5 +8 +11 Expanding a new store format

- BKK 19 20 21 0 +1 +1 Opened two “Mega Home” stores in

- Non-BKK 26 33 43 +5 +7 +10 2013 to compete with Siam Global House

GLOBAL 13 20 27 +3 +7 +7

- BKK 0 0 0 0 0 0

- Non-BKK 13 20 27 +3 +7 +7

ROBINS 25 30 35 3 5 5

- BKK 9 10 11 1 1 1

- Non-BKK 16 20 24 2 4 4


Robinson Department Store expands outside Thailand. Robinson Department

Store’s expansion strategy has changed since 2012 – its new mall format is geared

towards community malls rather than expanding its business with Central Pattana.

While the cost of a community mall is about 2x over that of a mall developed by

Central Pattana, it enables the company to earn rental income. Thus, Robinson

Department Store’s revenue will likely be geared towards rental income. In 2012,

one community mall was built on top of five new malls, while four out of five malls

built in 2013 were community malls. As the Chirathivat family has been expanding

the Central department store brand in parallel with the Robinson brand, we think the

company’s continued expansion of Central department stores may cap its earnings

upside. The family has made Robinson the key brand in overseas mall expansion, in

which it plans to build one mall in Malaysia in 2016 and two malls in Vietnam in

2014-2015.



Siam Global House misses expansion target. After forming a partnership with

SCG in 2012, Siam Global House targets to open 10-12 outlets annually. However, it

missed its target in 2012-2013 due to construction problems, causing it to lose its

market position to its key competitors ie Thai Watsadu and Home Product Center,

which have expanded their businesses aggressively.

Further expansion may create risk of cannibalization

Expansion to remain at same pace in 2014. Following the strong expansion in

2012-2013, retailers continue to expand at the same pace in 2014 to gain market

share and to secure their footprint in prime locations, as well as to gain better

bargaining power over suppliers for rebate incomes. Thus, despite an expected

recovery in domestic consumption, we believe SSSG may not be as strong as in

the past. Growth driver will come from the company’s ability to generate higher

margin and capture market share from its competitors.

We compare the number of discount stores from three operators (Big C

Supercenter, Siam Makro and Tesco) over the number of districts, and the number

of discount stores in small format over the number of sub-districts nationwide as

follows:

No. of discount stores /no. of Bangkok districts =10:1

No. of discount stores /no. of upcountry districts = 2:1

No. of discount stores (in small format) /no. of sub-districts = 0.7:1

This calculation is based on the assumption that 60% of the combined discount

stores (in big format) of Big C Supercenter, Siam Makro and Tesco are located in

Bangkok and 40% in the upcountry. Meanwhile, we assume that 20% of small-

format discount stores (Big C Supercenter and Tesco) are located in Bangkok and

80% in upcountry. Note that the expansion of new stores (ie big-format discount

stores) has slowed down since 2012.

Figure 26: Number of provinces, districts, villages

Number of provinces 76

Number of districts 182

Number of sub-districts (Tombon) 1,900

Number of villages 5,693

Source: Department of Local Administration, Interior Ministry (data as of 2012)

New growth platform should be significant after 2015

Although some retailers like Home Product Center and Robinson Department Store

have started overseas expansion, their business models remain conservative by not

building big stores on their own, but rather share the rental space with the existing

malls in that country. Investment cost is estimated at around THB300m/store, but

overseas business contribution to bottomline should be insignificant due to

economies of scale and high start-up costs. Given the two companies’ strong

balance sheets and high capability in the segments they operate, overseas

investments have not been a much of a burden. However, we are neutral on this

strategy.



Retail sector is never cheap and the disconnection between

fundamentals and share prices continues

Figure 27: Foreign holdings in each retailer

-

10.0

20.0

30.0

40.0

50.0

60.0

BIGC

CPALL

CPN

ROBINS

HMPRO

GLOBAL

Source: Stock Exchange of Thailand

Figure 28: YTD performance

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

ROBINS

CPALL

BIGC

MAKRO

GLOBAL

HMPRO

SET

Source: Stock Exchange of Thailand

Strong platform, low free float cause disconnection between fundamentals and

share prices. Despite weakened consumption and the weak earnings outlook for all

retailers, the share prices have turned the other way around. Except for CP ALL and

Siam Global House, others retailers’ share prices have outperformed the SET over

the past 2-3 months. We believe the key reasons for the discrepancy between the

companies’ fundamentals and the performance of their stocks are a low free float and

a solid retail platform. All retailers in Thailand are family businesses, with a

percentage held by the family group exceeding 50% on average.

Figure 29: Major shareholders in each retailer

Major shareholder % holding

BIGC Casino Group from France 70%

CPALL CP Group 43%

MAKRO CP Group 97.8%

CPN Chirathivat family 55%

ROBINS Chirathivat family 56.8%

CENTEL Chirathivat family 68%

HMPRO LH and QH 50%

GLOBAL Suriyawanasin family/SCG 33.75%/30.0%

MINT Group of William E. Heinecke and Minor 34%

Source: Company data, Stock Exchange of Thailand, RHB Research

Foreign holding in retailers has been

declining, particularly in the home

improvement segment eg Home Product

Center, Siam Global House, Robinson

Department Store and Central Plaza Hotel.

Only CP ALL’s foreign holding has increased slightly by around 2% YTD

Robinson Department Store, Siam Makro and

Home Product Center outperformed the SET

over the past one month, while Siam Global

House, Big C Supercenter and CP ALL

underperformed



Co-brands/platforms create synergies for Central Plaza Hotel/Robinson

Department Store and CP ALL/Siam Makro. The Chirathivat family currently

controls the largest retail business chain comprising department stores (two brands,

ie Central and Robinson), Family Mart convenience stores, a food restaurant

business using Central Plaza Hotel’s platform, and Thai-Watsadu, a retail

construction materials specialty store. Its retail chains currently covers all segment.

The growing retail business enables the company to gain more bargaining power.

With all resources shared among the companies within the group, this boosted profits

in all retail segments. On the other hand, CP Group has strong expertise in integrated

food processing (ranging from farming business to cooked food), which in turn

supplies major food product sources to CP ALL. As CP ALL has not been able to

expand its 7-11 business out of Thailand, its acquisition of Siam Makro would fit the

company’s ambitious overseas expansion plan. Siam Makro has the most profitable

discount store business among the wholesalers, and has a key strength in its

“Horeca” divisions. However, it is only expected to roll out its overseas expansion

after 2015.



BIG C Supercenter (BIGC TB) BUY (from Neutral) Consumer Cyclical - Retail Target Price: THB225.00

Market Cap: USD5,222m Price: THB206.00

Trading At Too Deep a Discount

Macro

2.00

Risks

1.00

Growth

2.00

Value

2.00

93

97

101

106

110

114

118

160

170

180

190

200

210

220

BIG C Supercenter (BIGC TB)Price Close Relative to Stock Exchange of Thailand Index (RHS)

11111222

Ju

n-1

3

Au

g-1

3

Oct-

13

De

c-1

3

Fe

b-1

4

Ap

r-1

4

Vo

l m

Source: Bloomberg

Avg Turnover (THB/USD) 56.0m/1.73m

Cons. Upside (%) 3.4

Upside (%) -9.2

52-wk Price low/high (THB) 171 - 214

Free float (%) 30

Share outstanding (m) 825

Shareholders (%)

Casino Group 61.3

Chirathivat Family 10.0

Share Performance (%)

YTD 1m 3m 6m 12m

Absolute 12.0 12.6 15.7 11.1 3.3

Relative (0.3) 8.8 7.9 4.0 5.5

Shariah compliant

Chalie Kueyen 66 2862 9745

[email protected]

Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F

Total turnover (THBm) 109,548 120,062 126,922 136,921 151,520

Reported net profit (THBm) 5,242 6,074 6,976 7,490 8,796

Recurring net profit (THBm) 5,049 5,410 6,976 7,490 8,796

Recurring net profit growth (%) 57.4 7.1 28.9 7.4 17.4

Recurring EPS (THB) 6.3 6.7 8.5 9.1 10.7

DPS (THB) 1.96 2.21 2.54 2.72 3.20

Recurring P/E (x) 32.7 31.0 24.4 22.7 19.3

P/B (x) 7.03 5.33 4.59 4.02 3.51

P/CF (x) 19.8 22.2 22.9 23.1 17.0

Dividend Yield (%) 1.0 1.1 1.2 1.3 1.6

EV/EBITDA (x) 25.7 21.1 20.6 18.8 15.7

Return on average equity (%) 23.9 21.9 20.3 18.9 19.4

Net debt to equity (%) 123.6 63.4 47.2 32.8 15.7

Our vs consensus EPS (adjusted) (%) 0.0 0.0


We like BIG C Supercenter for the potential enhancement of its value. Although the growth outlook of its discount stores is less robust compared with others, its ability to lower net debt and interest expenses could boost free cash flow (FCF) and enhance value. Given its undemanding valuation and the recovery of domestic consumption, we upgrade our rating to BUY with a TP of THB225.00 (EV/EBITDA 12.5x).

Upgrading earnings estimate and TP. We believe BIG C Supercenter

(BIG C)’s growth outlook is less robust compared with others, as there is strong competition among discount stores and it is not a market leader. As such, we assume that its same-store sales growth (SSSG) recovery will be slower than that of its competitors. We estimate its SSSG at 0.5%/2.5%, up from 0/1% previously, and its earnings growth at 3%/7.5% in FY14/15 respectively (vs. sector average earnings growth of 13%/19% in FY14/15 respectively). Still, the stock is still a BUY, given its undemanding valuation. We applied a 2-year forward EV/EITDA of 12.5x (vs. 15x for the sector) to derive a TP of THB225 (up fromTHB195).

Paring net debt to enhance valuation. BIG C is reducing its FY14

capex to THB5bn-6bn from THB7.1bn in FY13, which is expected to increase its debt repayment capability, strengthen FCF and improve its valuation. We lower our net debt assumption for FY14 to THB15bn or net debt-to-equity ratio to 0.37x, while assuming that it will repay THB4bn of debt in FY14 vs THB2bn in FY13. As such, it is expected to save around THB150m in interest costs – thereby boosting net profit. Note that its capex of THB7.1bn in FY13 is allocated for the expansion of two distribution centres and branches, six hypermarkets, 12 BIG C markets, 153 Mini BIG Cs and 41 Pure drugstores.

Long-term focus is still in Thailand. Although other retailers are

studying options to expand to countries like Malaysia and Vietnam, BIG C continues to focus on Thailand. The Big C brand was recently introduced to Vietnam via a franchise with its parent company Casino Group, which aims to leverage on an expansion there. In this case, BIG C earns only royalty fees from its Vietnamese counterpart.



Financial Exhibits

Profit & Loss (THBm) Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F

Total turnover 109,548 120,062 126,922 136,921 151,520

Cost of sales (87,325) (96,019) (100,490) (108,639) (119,634)

Gross profit 22,223 24,043 26,432 28,282 31,885

Gen & admin expenses (15,401) (16,477) (20,936) (22,236) (24,487)

Selling expenses (2,581) (2,100) - - -

Operating profit 4,241 5,466 5,496 6,046 7,399

Operating EBITDA 7,548 8,877 9,114 9,795 11,330

Depreciation of fixed assets (3,307) (3,411) (3,618) (3,749) (3,931)

Operating EBIT 4,241 5,466 5,496 6,046 7,399

Other recurring income 3,853 3,006 4,049 4,170 4,296

Interest expense (1,271) (1,295) (1,053) (826) (666)

Other non-recurring income 192 664 - - -

Pre-tax profit 7,015 7,841 8,492 9,391 11,028

Taxation (1,754) (1,749) (1,502) (1,878) (2,206)

Minority interests (19) (19) (14) (23) (27)

Profit after tax & minorities 5,242 6,074 6,976 7,490 8,796

Reported net profit 5,242 6,074 6,976 7,490 8,796

Recurring net profit 5,049 5,410 6,976 7,490 8,796


Cash flow (THBm) Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F


Depreciation & amortisation 3,307 3,411 3,618 3,749 3,931

Change in working capital 3,795 1,712 874 272 1,546

Operating cash flow 11,344 10,589 9,987 10,067 12,876

Interest paid (1,271) (1,295) (1,053) (826) (666)

Tax paid (1,754) (1,749) (1,502) (1,878) (2,206)

Cash flow from operations 8,318 7,545 7,432 7,363 10,004

Capex (41,125) (5,289) (5,540) (5,820) (5,820)

Cash flow from investing activities (41,125) (5,289) (5,540) (5,820) (5,820)

Dividends paid (1,587) (1,571) (1,822) (2,093) (2,247)

Proceeds from issue of shares - 3,993 - - -

Increase in debt 36,500 (7,500) (2,000) (4,000) (4,000)

Other financing cash flow - - (0) - (0)

Cash flow from financing activities 34,913 (5,078) (3,822) (6,093) (6,247)

Cash at beginning of period 5,132 7,422 8,780 7,175 6,795

Total cash generated 2,106 (2,822) (1,930) (4,550) (2,063)

Implied cash at end of period 7,238 4,599 6,850 2,625 4,732




Financial Exhibits

Balance Sheet (THBm) Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F

Total cash and equivalents 7,422 8,780 7,175 6,795 9,028

Inventories 8,941 9,196 9,535 10,404 11,457

Accounts receivable 274 315 323 357 393

Other current assets 4,264 4,120 4,749 4,854 5,502

Total current assets 20,901 22,411 21,782 22,410 26,380

Tangible fixed assets 36,883 38,654 42,479 44,551 46,439

Total other assets 32,943 33,098 32,903 32,903 32,903

Total non-current assets 69,825 71,752 75,383 77,454 79,343

Total assets 90,726 94,163 97,164 99,864 105,722

Short-term debt 36,500 7,675 6,000 6,000 6,000

Accounts payable 24,980 26,944 26,998 29,764 32,777

Other current liabilities 2,463 2,361 4,158 2,826 3,488

Total current liabilities 63,942 36,980 37,156 38,590 42,264

Total long-term debt - 21,325 18,650 14,650 10,650

Other liabilities 3,264 3,970 4,320 4,320 4,320

Total non-current liabilities 3,264 25,295 22,970 18,970 14,970

Total liabilities 67,206 62,276 60,126 57,560 57,235

Share capital 23,498 31,863 37,019 42,262 48,419

Shareholders' equity 23,498 31,863 37,019 42,262 48,419

Minority interests 22 24 19 42 68

Other equity 0 0 (0) 0 (0)

Total equity 23,520 31,887 37,038 42,304 48,487

Total liabilities & equity 90,726 94,163 97,164 99,864 105,722


Key Ratios (THB) Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F

Revenue growth (%) 47.9 9.6 5.7 7.9 10.7

Operating profit growth (%) 90.2 28.9 0.5 10.0 22.4

Net profit growth (%) 86.1 15.9 14.8 7.4 17.4

EPS growth (%) 86.1 14.2 13.2 7.4 17.4

Bv per share growth (%) 15.0 31.7 16.2 14.2 14.6

Operating margin (%) 3.9 4.6 4.3 4.4 4.9

Net profit margin (%) 4.8 5.1 5.5 5.5 5.8

Return on average assets (%) 8.0 6.6 7.3 7.6 8.6



DPS 1.96 2.21 2.54 2.72 3.20

Recurrent cash flow per share 10.4 9.3 9.0 8.9 12.1




SWOT Analysis

Second largest hypermarket operator with >110 hypermarket stores

Strong bargaining power from its dominant market share of % in Thailand’s modern grocery retail trade

Regulatory restrictions on large-format store expansion in Thailand

Has a dual retail-property model, with an opportunity to unlock value from its property assets

Seeking growth through small-format stores such as Mini Big Cs

Customers tend to be price-sensitive

Slow organic growth of 11% CAGR in 2005-10 before acquiring Carrefour’s Thailand assets in 0 0

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Company Profile Big C Supercenter is Thailand’s second largest hypermarket operator with an estimated % market share in the domestic modern grocery retail space. As at 4Q13, it had 559 stores (119 hypermarkets, 30 Big C Markets, 278 Mini Big Cs and 132 Pure Drugstores).



CP ALL (CPALL TB) Trading Buy (from Neutral) Consumer Cyclical - Retail Target Price: THB48.00


High-Risk High-Return

Macro

3.00

Risks

3.00

Growth

1.00

Value

1.00

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Avg Turnover (THB/USD) 688m/21.2m


Upside (%) 4.3

52-wk Price low/high (THB) 32.8 - 46.0

Free float (%) 50

Share outstanding (m) 8,983

Shareholders (%)

Charoen Pokphand Group 44.3

AIA 2.7

GIC 1.0


YTD 1m 3m 6m 12m

Absolute 9.5 8.2 15.0 9.5 10.2

Relative (3.6) 1.5 6.1 2.1 14.1

Shariah compliant


[email protected]







DPS (THB) 0.63 0.90 0.59 0.65 0.81

Recurring P/E (x) 51.6 37.5 37.5 33.6 27.1

P/B (x) 19.2 15.3 14.4 11.8 9.7

P/CF (x) 32.6 17.8 16.2 14.4 16.1

Dividend Yield (%) 1.4 2.0 1.3 1.4 1.8

EV/EBITDA (x) 27.5 22.3 31.8 22.3 18.7


Net debt to equity (%) net cash net cash 483.1 367.0 282.1

Our vs consensus EPS (adjusted) (%) (4.1) (7.4)


As CP ALL can grow its SSSG at 2.0x over the domestic consumption growth level, it is a prime beneficiary of a recovery pattern. Thus, FY14/FY15 earnings are upgraded by 5%/22%, which mainly reflects 3.5%/7% SSSG (from 3%/5%). With a strong recovery in FY15, we take its 2-year forward EV/EBITDA at a 20.0x premium to reach a THB48.00 FV. Given the undemanding valuation, our rating is TRADING BUY.

Demanding valuations cap upside. CP ALL is expected to get a

substantial benefit from the domestic consumption’s first-leg of recovery, as around 72% of its product mix in store is focused on food. We can then assume its same-store sales growth (SSSG) to pick up strongly to 3.0% in FY14 (from -1.0% in 1Q14) and 7.0% in FY15. Furthermore, costs related to the Siam Makro (MAKRO TB, NR) acquisition will be fully amortised within 2014. Thus, the lower operating cost will boost earnings to come in very strongly in FY15. However, even with a bullish net profit assumption, CP ALL’s forward valuations are not cheap, with EV/EBITDA of 21.0x/18.0x in FY14/FY15. Thus, it is worth only a TRADING BUY with a THB48.00 TP based on a 2-year forward EV/EBITDA of 20.x. Note that costs related to the Siam Makro acquisition is ~4- % of the deal’sTHB 0bn value, which will be amortised in the P&L over two years.

Benefiting the most under a consumption recovery. On average, CP

ALL usually grows SSSG at around 2.0x over the domestic consumption or around 3.0x over GDP growth levels. A competitive advantage in terms of product mix and store coverage also enables it to maintain this kind of growth pattern over the next round of recovery. Given a domestic consumption assumption growth of 3.5% and a base case GDP growth of 3.5% in FY15, we can then assume 7% SSSG. Upside surprise would be from higher-than-expected consumption and GDP growth in FY14/FY15. Since every 1% rise in SSSG would help boost earnings by around 3%. Hence, CP ALL represents a high-risk high-return option.

Synergy benefits with Siam Makro not factored in. Although the

company guided that the synergy benefits from the acquisition of Siam Makro would come in terms of better bargaining power for further margins improvement, this would be more for FY15. Thus, we assume flat margins for CP ALL currently. Meanwhile, synergy benefits ought to provide an earnings upside to our net profit forecasts.



Financial Exhibits


Total turnover 161,890 197,777 284,599 415,589 453,609

Cost of sales (116,863) (140,091) (210,657) (315,635) (343,828)

Gross profit 45,027 57,686 73,942 99,953 109,781


Selling expenses (6,593) (7,475) (11,905) (12,945) (12,926)

Other operating costs (306) - - (472) (2,453)




Operating EBIT 10,995 13,950 15,633 22,263 25,464

Interest expense (0) (0) (2,214) (7,127) (6,754)

Pre-tax profit 10,995 13,950 13,419 15,135 18,710

Taxation (2,981) (2,913) (2,292) (2,724) (3,368)









Change in working capital 1,360 9,058 10,148 11,249 4,343


Interest paid (0) (0) (2,214) (7,127) (6,754)

Tax paid (2,981) (2,913) (2,292) (2,724) (3,368)


Capex (3,688) (6,040) (5,500) (8,000) (8,000)

Other investing cash flow (6,345) (3,093) (188,880) - -


Dividends paid (4,493) (5,612) (8,088) (5,268) (6,160)

Increase in debt 2 (2) 188,880 (18,000) (18,000)

Other financing cash flow (0) (0) - - -

Cash flow from financing activities (4,491) (5,614) 180,792 (23,268) (24,160)


Total cash generated (1,848) 8,520 12,005 (2,609) (6,475)





Financial Exhibits



Inventories 8,642 9,148 19,916 21,619 23,550

Accounts receivable 477 541 848 1,084 1,180

Other current assets 3,190 4,109 7,516 6,502 7,083





Total assets 55,341 72,168 288,665 289,981 288,114

Short-term debt 2 - 135,143 135,143 135,143




Total long-term debt - - 50,000 32,000 14,000




Share capital 21,491 27,101 28,781 34,941 42,556


Minority interests 208 255 4,226 4,317 4,430

Other equity 0 (0) - - -

Total equity 21,699 27,355 33,007 39,258 46,985




Revenue growth (%) 15.0 22.2 43.9 46.0 9.1



EPS growth (%) 20.2 37.5 0.2 11.6 23.6






Net debt to equity (%) (111.0) (128.1) 483.1 367.0 282.1

DPS 0.63 0.90 0.59 0.65 0.81





SWOT Analysis

A leader in Thailand’s convenience store segment with a 53% market share

The acquisition of Siam Makro will see CP ALL become the largest modern grocery retailer in Thailand with a 45% market share

Sharp increase in borrowing costs

Poor post merger integration

Its parent company, Charoen Pokphand, is over-leveraged

Synergies from the acquisition includes better procurement terms, margins enhancement and unlocking value in Siam Makro’s property assets

The acquisition of Siam Makro has changed the company’s net cash position, resulting in a high net debt-to-equity of 5.2x and a net debt-to-EBITDA of >6.5x in 1Q14.

Costs related to the M&A will be fully amortised in FY14.

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Company Profile CP ALL is the sole operator of 7-Eleven stores in Thailand with >6,800 outlets.



Central Pattana (CPN TB) Buy (Maintained) Consumer Cyclical - Leisure & Entertainment Target Price: THB62.00


The strongest performer in long run

Macro

3.00

Risks

2.00

Growth

2.00

Value

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Upside (%) 27.2


Free float (%) 46


Shareholders (%)

Chirathivat Family 46.0

HSBC (Singapore) 8.5


YTD 1m 3m 6m 12m

Absolute 18.9 8.9 8.3 18.2 6.6

Relative 6.6 5.1 0.5 11.1 8.8

Shariah compliant


[email protected]







Recurring P/E (x) 103 48 36 31 27

P/B (x) 10.6 8.4 6.0 5.3 4.5






We see a gradual 2H14 recovery and a strong 2015 turnaround after domestic consumption fully recovers. During the latter, earnings are expected to grow swiftly, which could more than offset its topline shortfall in the challenging times. As consumption has bottomed out, we raise FY14F/15F earnings by 3%/8% and upgrade our TP to THB62.00 (from THB55.00), premised on 15x EV/EBITDA of 2-year forward earnings.

Upgrading earnings by 3%/8% and growth to 11%/18% in FY14/15.

We upgrade Central Pattana’s FY14F/15F earnings estimate by 3%/8%, after raising our same-store sales growth (SSSG) assumption on rental rates to 3.5%/5.5% (from 2%/3%). Thus, we expect y-o-y earnings to grow 11% (FY14) and 18% (FY15). Our forecasts also factor in two new malls opening in FY14 (Bangkok-Salaya and Samui) and three malls opening in FY15 (Bangkok-Bangyai, East Ville and Rayong), which should add net lettable area (NLA) by c.5% and 10% respectively.

To benefit from recovery in consumption. We believe Central Pattana

will benefit the most once the Chirathivat family – its majority shareholder – aggressively grows the retail business. As the company is a landlord, developing department stores for brands like Central and Robinson Department Store (ROBINS TB, NEUTRAL, TP: THB50.00), and then managing the rental space and shopping centers within the malls implies that its business model is safe and sound. Although weakening SSSG pressures its earnings outlook, the impact is short-term, as the weakness in income stems from the Central World shopping mall, where its NLA accounts for 13-15% of the total. Furthermore, over half of Central Pattana’s 24 malls have been able to increase rental rates by around 10% while the remainder have maintained their rental rates. As most of the rental agreements at these malls are based on revenue-sharing basis, we think recovery could come at faster pace, ie in tandem with tourist arrivals and high-end consumption.

NLA to grow 5%/10% in FY14/15. We like Central Pattana for its

consistently growing NLA and above-GDP rental rate growth rate. Its historical 5-year NLA CAGR was at 12.5% and NLA is expected to increase by 5%/10% in FY14/15. With greater NLA and efficiency in managing department stores, it is still a consistently high-growth company. Note that Central Pattana was able to recover rental rates by 3.0x after the 2010 crisis, which completely made up for the revenue shortfall that occurred as a result of that situation.



Financial Exhibits


Total turnover 11,951 16,762 19,913 24,454 28,312

Cost of sales (7,783) (9,433) (10,542) (13,757) (15,472)

Gross profit 4,167 7,328 9,372 10,697 12,839





Operating EBIT 1,757 4,587 5,926 7,113 8,319

Net income from investments 498 584 686 892 1,025

Other recurring income 1,050 1,003 1,419 1,440 1,728

Interest expense (874) (1,057) (813) (934) (1,028)

Exceptional income - net - 1,776 377 - -

Pre-tax profit 2,430 6,893 7,595 8,511 10,045

Taxation (354) (642) (1,206) (1,447) (1,708)









Change in working capital 5,016 2,414 1,540 6,896 3,653


Interest paid (874) (1,057) (813) (934) (1,028)

Tax paid (354) (642) (1,206) (1,447) (1,708)


Capex (11,985) (6,932) (8,500) (9,000) (12,500)

Other investing cash flow (452) 854 (1,400) (1,400) (1,400)


Dividends paid (545) (806) (1,398) (1,649) (1,845)

Increase in debt 6,160 320 (709) 1,000 -

Other financing cash flow (870) (1,239) 2,107 649 1,845

Cash flow from financing activities 4,746 (1,725)

Cash at beginning of period 772 833 2,894 1,752 4,510

Total cash generated 801 757

Implied cash at end of period 1,573 1,590




Financial Exhibits


Total cash and equivalents 945 4,207 1,869 4,625 9,190

Accounts receivable 2,348 2,119 1,230 2,464 2,841

Other current assets - - 2,400 - -


Total investments 2,714 3,309 3,354 3,500 3,500


Intangible assets 13,478 10,037 11,457 13,838 13,987



Total assets 64,059 70,284 77,539 85,761 96,537

Short-term debt 7,410 6,844 6,054 5,344 6,344




Total long-term debt 18,265 18,944 13,788 14,788 15,988




Share capital 2,179 2,179 2,244 2,244 2,244

Retained earnings reserve 15,776 21,165 25,376 31,414 38,538

Other reserves 2,008 2,008 8,559 7,809 7,809


Minority interests 485 549 645 631 725

Other equity 0 - 0 0 -

Total equity 20,448 25,900 36,824 42,098 49,317




Revenue growth (%) 13.5 40.3 18.8 22.8 15.8



EPS growth (%) 83.0 200.7 0.2 9.4 18.0











SWOT Analysis

Well-reputed market leader in the retail development segment

Risk in expanding overseas, where consumer behaviour may vastly differ from that of Thailand’s

Political unrest may threaten spending

Leveraging on its expertise in merchandising and marketing to venture into new overseas markets

Regulators plan to replace property funds – for which terms and conditions are favourable to Central Pattana – with REITs, which is slightly less beneficial in terms of taxes on asset transfers

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Company Profile Central Pattana is Thailand's largest retail developer with over 30 years of experience. It currently manages 24 shopping centres, seven office buildings, two hotels and two residential projects. Its retail net lettable area stands at around 1.2trn sq m, while its hotel and residential projects span over 2m sq m. The company is the leader in the retail development and management industry, and has the biggest share of Bangkok’s retail market at 24%.



Home Product Center (HMPRO TB) Buy (Maintained) Consumer Cyclical – Retail Target Price: THB11.0


A Resilient Profile

Macro

3.00

Risks

3.00

Growth

2.00

Value

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Home Product Center (HMPRO TB)Price Close Relative to Stock Exchange of Thailand Index (RHS)

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Upside (%) 16.4


Free float (%) 50


Shareholders (%)

Land and House 30.2

Quality House 19.8


YTD 1m 3m 6m 12m

Absolute 15.5 12.5 10.3 4.9 (13.7)

Relative 2.8 6.2 3.0 (2.0) (14.5)

Shariah compliant


[email protected]







Recurring P/E (x) 24.0 22.7 25.6 27.5 24.7

P/B (x) 6.79 6.75 7.13 6.77 5.90

P/CF (x) 12.6 17.7 15.1 17.3 18.1

EV/EBITDA (x) 12.1 13.3 14.9 15.7 14.3





We like Home Product for its resilient profile, consistent efficiency improvement and dynamic policy to cope with the tough times. In anticipation of consumption recovery, we revise up our earnings forecasts by 1%/7% to 14%/20% in FY14/FY15, which mainly reflect higher SSSG at 3%/5.5% in FY14/FY15 and a flat margin. We rate it as a BUY with a TP of THB11 (up from THB10), which is based on a 2-year forward EV/EBITDA of 15x.

Revised earnings and TP. Given our consumption recovery theme, we

revise up our earnings forecasts by 1%/7% in FY14/FY15, which mainly reflect higher same store sales growth (SSSG) assumption of 3%/5.5% in FY14/FY15 (up from 2%/3% in the previous forecast). As recovery of the home improvement segment tends to lag behind convenience stores, we apply a 2-year forward EV/EBITDA multiple of 15x (vs 20x for a convenience store like CP All (CPALL TB, TRADING BUY, TP:THB48), which leads to a TP of THB11 with a BUY recommendation.

A resilient profile. Despite weaker domestic consumption, Home

Product Centre (Home Product) is the only company that has been able to register positive SSSG, and its earnings have been resilient given its ability to increase the proportion of house brand products in stores (which currently represent 22% in sales) to consistently improve its margins. Although the company faces the pressure of high operating cost due to the need to set up new stores overseas and tap its competitors’ market share in the construction segment’s specialty store, we believe its operating expenses are manageable. Given that its 1Q14 earnings accounted for 26% of our full-year forecast, we expect low FY14 earnings risk for the company.

Accelerate expansion to gain footprint. Home Product has expanded

its new stores aggressively in 2012 (+eight stores) and the number is even higher in 0 3 (+ stores) We believe the company’s expansion plan partly reflects its attempt to expand its footprint and secure prime locations in a bid to compete with new competitors like Siam Global House (GLOBAL TB, SELL, TP: THB9.80), which became stronger after a formed partnership with SCG and Thai Watsadu, a non-listed company under the Chirathiwat family.



Financial Exhibits


Total turnover 30,423 36,944 42,830 49,559 57,036

Cost of sales (21,074) (25,559) (29,346) (33,834) (38,872)

Gross profit 9,349 11,385 13,484 15,724 18,164





Operating EBIT 3,044 3,628 4,134 4,788 5,658

Interest expense (118) (146) (277) (380) (410)

Pre-tax profit 2,926 3,482 3,857 4,408 5,248

Taxation (921) (803) (789) (882) (1,050)








Change in working capital 537 (508) 317 852 287

Other operating cash flow 129 76 158 (762) (960)


Interest paid (113) (132) (221) (380) (410)

Tax paid (797) (879) (844) (882) (1,050)


Capex (3,419) (5,667) (9,072) (6,000) (6,000)

Other investing cash flow - - (589) (500) (500)


Dividends paid (144) (1,006) (284) (500) (500)

Proceeds from issue of shares (148) (940) (212) - -

Increase in debt 249 2,500 4,264 1,640 (500)

Other financing cash flow 43 51 5 - -

Cash flow from financing activities 0 605 3,774 1,140 (1,000)

Cash at beginning of period 1,417 1,977 1,291 807 2,115

Total cash generated 412 (1,627) (694) 257 (1,775)

Implied cash at end of period 1,829 350 596 1,064 340




Financial Exhibits


Total cash and equivalents 1,977 1,291 807 2,115 2,300

Inventories 4,382 5,353 6,506 7,105 8,163

Accounts receivable 986 1,252 1,411 1,624 1,866

Other current assets 108 236 497 80 80






Total assets 20,678 25,800 35,942 43,492 48,352

Short-term debt 304 2,006 1,860 4,000 4,000




Total long-term debt 91 81 6,300 6,300 5,800




Share capital 5,837 7,041 9,590 10,960 10,960

Other reserves 2,284 2,818 3,127 4,334 6,583


Total equity 8,121 9,860 12,716 15,294 17,543




Revenue growth (%) 16.8 21.4 15.9 15.7 15.1



EPS growth (%) (3.0) 5.7 (11.3) (7.0) 11.6

Bv per share growth (%) (3.3) 0.6 (5.3) 5.2 14.7










SWOT Analysis

Ability to add house brand products to consistently improve margins and ensure high profitability.

More severe competition in the upcountry given farming income.

Rolling out the business model in Thailand to Malaysia

Expanding its new Mega Home store format, focusing more on construction materials.

Weaker domestic consumption, particularly in the home improvement segment.

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P/BV (x) vs ROAE



Company Profile The Home Product Centre (HMPRO) was established with the objective of operating a retail business in the home improvement segment by selling goods. The business also provides a complete range of services relating to construction, in addition to refurbishment, renovation, improvement of buildings, houses and residential places through a one-stop shopping centre format under the HomePro trade name, the company’s trademark. Currently, the company manages 22 stores in Bangkok and 44 stores in the upcountry.



Robinson Department Store (ROBINS TB) Buy (from Neutral) Consumer Cyclical - Retail Target Price: THB65.0


The Cheapest Retailer

Macro

3.00

Risks

3.00

Growth

2.00

Value

2.00

71

77

83

89

94

100

106

41

46

51

56

61

66

71

Robinson Department Store (ROBINS TB)Price Close Relative to Stock Exchange of Thailand Index (RHS)

1

2

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6

7

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n-1

3

Au

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3

Oct-

13

De

c-1

3

Fe

b-1

4

Ap

r-1

4

Vo

l m

Source: Bloomberg

Avg Turnover (THB/USD) 46.4m/1.43m

Cons. Upside (%) -9.9

Upside (%) 11.6


Free float (%) 31


Shareholders (%)

Group of Jirathiwat Family 57.2

Credit Suisse AG, Singapore 4.4


YTD 1m 3m 6m 12m

Absolute 21.4 16.5 9.9 12.6 (12.4)

Relative 8.7 10.2 2.6 5.7 (13.2)

Shariah compliant


[email protected]





Recurring net profit growth (%) (14.4) 14.1 19.8 11.0 19.0


DPS (THB) 0.65 0.90 0.87 0.96 1.15

Recurring P/E (x) 44.5 39.0 32.6 29.4 24.7

P/B (x) 7.41 6.26 5.71 5.13 4.77

P/CF (x) 27.7 20.4 20.3 12.5 13.3

Dividend Yield (%) 1.1 1.5 1.5 1.7 2.0

EV/EBITDA (x) 20.9 19.4 15.6 14.8 12.8


Net debt to equity (%) net cash net cash net cash net cash net cash



We view Robinson as a high-risk and high-return retailer. In anticipation of a recovery in domestic consumption, it could be the next beneficiary after discount stores or convenience stores. Upside surprises are likely to come from three aspects: i) the growth of upcountry economy is faster-than-expected, ii) its earnings, which are highly sensitive to GDP (SSSG +1%, earnings +3%) and iii) its valuation, which is the cheapest among the retailers.

Revise up earnings by 3%/6% in FY14/FY15. Robinson Department

Store (Robinson) was hit hard by weaker domestic consumption in the discretional segment. The aggressive expansion (+five stores/year in 2012-2013) and challenging economic times in 2012-2013 also added pressure to earnings performance. In anticipation of a recovery in domestic consumption, Robinson could be the next beneficiary after discount stores or convenience stores. We upgrade our FY14/FY15 earnings forecasts by 3%/7%, which mainly reflect higher same store sales growth (SSSG) of 2%/4% (up from 0%/2% in previous forecast). We value it by using a 2-year forward EV/EBITDA of 12.5x (vs 15x for the sector average), reaching a TP of THB65 (up from THB50).

Lowest valuation among peers. Robinson’s earnings are highly

sensitive to the growth of SSSG. According to our sensitivity analysis, when SSSG changes by 1%, it will help boost earnings by around 3%. Thus, Robinson will present the opportunities of a high-risk, high-return counter when the domestic economy turns sound. In addition, the faster-than-expected growth of upcountry economy will provide the company with earnings upside surprise. In comparison to the demanding valuation of other retailers, Robinson is trading at the lowest valuation at EV/EBITDA of 13x/11x in FY14/FY15.

Overseas businesses not factored in. Robinson targets to open two

new malls in Vietnam in FY14 (one mall was already opened in 1Q14) and seven malls in Vietnam within 2-3 years. Although this expansion seems challenging to the company in terms of cultural differences, varying consumer behaviours and lots of uncertainties, it could actually be safe for the company given its asset-light model strategy, whereby mall expansion is carried out by sharing rental space with the existing malls in Vietnam. Thus, its overseas investments have not been much of a burden. However, we are NEUTRAL on this strategy and expect significant contribution only after 2015.



Financial Exhibits


Total turnover 18,504 22,709 25,600 30,566 35,231

Cost of sales (13,327) (16,310) (18,386) (22,164) (25,499)

Gross profit 5,177 6,399 7,214 8,402 9,732




Depreciation of fixed assets (785) (1,058) (1,418) (1,678) (1,938)

Operating EBIT 1,426 1,617 1,528 1,654 1,857

Net income from investments 776 1,204 1,155 1,390 1,709

Pre-tax profit 2,202 2,822 2,682 3,044 3,566

Taxation (568) (930) (456) (609) (713)








Depreciation & amortisation 785 1,058 1,418 1,678 1,938

Change in working capital (225) (102) (503) 1,360 351

Other operating cash flow 354 606 748 502 728



Capex (1,798) (2,707) (4,074) (4,000) (3,000)

Other investing cash flow (1,239) 945 833 (898) (1,077)


Other financing cash flow (613) (778) (1,090) (1,069) (1,272)

Cash flow from financing activities (613) (778) (1,090) (1,069) (1,272)


Total cash generated (1,310) 639 (1,141) (773) (475)





Financial Exhibits



Inventories 1,163 1,325 1,667 1,912 2,207

Accounts receivable 505 604 739 869 1,003

Other current assets 429 419 304 550 450


Total investments 2,458 1,933 3,679 3,628 4,166



Total other assets 375 862 822 805 403


Total assets 14,265 17,160 18,830 22,355 25,035


Other current liabilities 1,560 1,800 2,222 236 236


Total long-term debt - - - 500 700

Other liabilities 131 157 188 191 303

Total non-current liabilities 131 157 188 691 1,003


Share capital 3,943 3,943 3,943 3,943 3,943

Retained earnings reserve 4,668 6,266 7,252 8,545 9,502

Other reserves 128 127 148 125 125


Minority interests 331 520 670 837 1,047

Other equity (0) - - - -

Total equity 9,070 10,856 12,013 13,450 14,616




Revenue growth (%) 19.1 22.7 12.7 19.4 15.3

Operating profit growth (%) 47.2 13.4 (5.5) 8.2 12.3

Net profit growth (%) (14.4) 14.1 19.8 11.0 19.0

EPS growth (%) (14.4) 14.1 19.8 11.0 19.0






Net debt to equity (%) (33.1) (37.4) (17.5) (11.4) (10.0)

DPS 0.65 0.90 0.87 0.96 1.15





SWOT Analysis

Strong market position in the second-tier department store segment in the upcountry

Being an integral part of the largest department store chain provides competitive advantage in product assortments.

The slowdown in farmers’ incomes in the upcountry is expected to continue

Cheaper cost of operations from using a centralised management, product sourcing and purchasing system.

Consumer Confidence Index (CCI) is recovering

End of political unrest should help CCI recover further

Consumption in discretional segment is normally slower than discount stores and convenience stores, although full benefits should be reaped in 2015.

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43%

52%

61%

70%

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2.8%

5.6%

8.3%

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P/BV (x) vs ROAE



Company Profile Robinson Department Store is an integral part of the Chirathivat family’s business, which operates the largest department store chain and the most profitable department store in Thailand. The company has positioned itself as a department store/community mall manager in second-tier towns in both Bangkok and the provinces.

41

RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. 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42

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Thai Institute of Directors Association (IOD) – Corporate Governance Report Rating 2013

ADVANC BCP CPF ERW IVL NKI PS ROBINS SCB SNC TCAP TMB UV AOT BECL CPN GRAMMY KBANK NOBLE PSL RS SCC SPALI THAI TNITY VGI ASIMAR BKI CSL HANA KKP PAP PTT S&J SCSMG SPI THCOM TOP WACOAL BAFS BROOK DRT HEMRAJ KTB PG PTTEP SAMART SE-ED SSI THRE TRC BANPU BTS DTAC ICC LPN PHOL PTTGC SAMTEL SIM SSSC TIP TRUE BAY CIMB EASTW INTUCH MCOT PR QH SAT SIS SVI TASCO TTW BBL CK EGCO IRPC MINT PRANDA RATCH SC SITHAI SYMC TKT TVO

2S AYUD CNT GL KKC MBK OISHI SABINA STANLY TK TTCL zZMICO ACAP BEC CPALL GLOW KSL MBKET PB SAMCO STEC TLUXE TUF AF BFIT CSC GOLD KWC MFC PDI SCCC SUC TMILL TWFP AHC BH DCC GSTEL L&E MFEC PE SCG SUSCO TMT TYM AIT BIGC DELTA GUNKUL LANNA MODERN PF SEAFCO SYNTEC TNL UAC AKP BJC DTC HMPRO LH MTI PJW SFP TASCO TOG UMI AMANAH BLA ECL HTC LHBANK NBC PM SIAM TCP TPC UMS AMARIN BMCL EE IFEC LHK NCH PPM SINGER TF TPCORP UP AMATA BWG EIC INET LIVE NINE PPP SIRI TFD TPIPL UPOIC AP CCET ESSO ITD LOXLEY NMG PREB SKR TFI TRT UT APCO CENTEL FE JAS LRH NSI PRG SMT THANA TRU VIBHA APCS CFRESH FORTH JUBILE LST NWR PT SNP THANI TSC VIH ASIA CGS GBX KBS MACO OCC PYLON SPCG THIP TSTE VNG ASK CHOW GC KCE MAJOR OFM QTC SPPT TICON TSTH VNT ASP CM GFPT KGI MAKRO OGC RASA SSF TIPCO TTA YUASA *** PHATRA was voluntarily delisted from the Stock Exchange of Thailand effectively on September 25,2012

A BCH CRANE FPI IT MBAX PICO SGP TBSP TPP WIN AAV BEAUTY CSP FSS JMART MDX PL SIMAT TCCC TR WORK AEC BGI CSR GENCO JMT PRINC POST SLC TEAM TTI AEONTS BLAND CTW GFM JTS MJD PRECHA SMIT TGCI TVD AFC BOL DEMCO GJS JUTHA MK PRIN SMK TIC TVI AGE BROCK DNA GLOBAL KASET MOONG Q-CON SOLAR TIES TWZ AH BSBM DRACO HFT KC MPIC QLT SPC TIW UBIS AI CHARAN EA HTECH KCAR MSC RCI SPG TKS UEC AJ CHUO EARTH HYDRO KDH NC RCL SRICHA TMC UOBKH AKR CI EASON IFS KTC NIPPON ROJNA SSC TMD UPF ALUCON CIG EMC IHL KWH NNCL RPC STA TMI UWC ANAN CITY EPCO ILINK LALIN NTV SCBLIF SUPER TNDT VARO ARIP CMR F&D INOX LEE OSK SCP SVOA TNPC VTE AS CNS FNS IRC MATCH PAE SENA SWC TOPP WAVE BAT-3K CPL FOCUS IRPC MATI PATO SF SYNEX TPA WG *** CIMBI was voluntarily delisted from the Stock Exchange of Thailand effectively on September 25, 2012.

IOD (IOD Disclaimer)

การเปิดเผลผลการส ารวจของสมาคมส่งเสริมสถาบันกรรมการบรษิัทไทย (IOD) ในเรื่องการก ากับดูแลกิจการ (Corporate Governance) นี้เป็นการด าเนินการตามนโยบายของส านักงานคณะกรรมการก ากับหลักทรัพย์และตลาดหลักทรัพย์ โดยการส ารวจของ IOD เป็นการส ารวจและประเมินจากข้อมูลของบรษัทจดทะเบียนในตลาดหลักทรัพย์แห่งประเทศไทยและตลาดหลกัทรัพย์เอ็มเอไอ ที่มีการเปิดเผยต่อสาธารณะและเป็นข้อมูลที่ผูล้งทุนทั่วไปสามารถเข้าถงึได้ ดังนั้นผลส ารวจดังกล่าวจึงเป็นการน าเสนอในมุมมองของบุคคลภายนอกโดยไม่ได้เป็นการประเมินการปฏิบัติและมิได้มีการใช้ข้อมูลภายในในการประเมิน

อนึ่ง ผลการส ารวจดังกล่าว เป็นผลการส ารวจ ณ วนัที่ปรากฎในรายงานการก ากับดแูละกิจการบริษัทจดทะเบียนไทยเท่านั้น ดังนั้นผลการส ารวจจึงอาจเปลี่ยนแปลงได้ภายหลังวันดังกล่าว ทัง้นี้บริษัทหลักทรัพย์ อาร์เอสบี โอเอส เค จ ากัด (มหาชน) มิได้ยืนยันหรือรับรองถึงความถูกต้องของผลการส ารวจดงักล่าวแต่อย่างใด

Date post:	29-Jul-2020
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