Robinson Department Store

Though share price fully valued, high growth seen in long term HOLD

Robinson Department Store Plc (ROBINS)

4Q12 profit projected to peak, rising 66% QoQ and 100% YoY

According to rather good spending during 4Q12, ROBINS's 4Q12 profit is

projected to hit the year's record high at B611m or 66% QoQ increase due to

seasonal benefits, rising by 1x YoY due mainly to the following reasons. In 4Q11,

there was B31m of loss recognition from associated companies (Supersports and

Power Buy) which was a result of flood crisis. In 4Q12, the company's profit is

projected to rebound by B100m. For the operating result, it has been good as

usual. The total sales are projected to increase by 29% YoY due to 7% YoY of

same-store sales growth (close to full year's average) and 8 new branches

opened since 2011-2012 (3 branches in 2011 and 5 branches in 2012).

Moreover, the rental fee together with other incomes have risen by 47% due to

increased rental space from lifestyle centers (more rental space than usual) and

some rental fee that has increased along with revenue sharing. In terms of the

gross margin, it has risen from 24.7% in 4Q11 to 25.4% in 4Q12 with more

introduction of new products. The clearance discount has been made already in

3Q12. There also have been benefits from corporate income tax rate cut to

23%. Nevertheless, this might be offset by the selling and administrative

expenses that still have stabilized at a high level of 22.4%, increasing from

20.9% in 4Q11 due to the minimum wage policy and continuous branch

expansion. For the overall look in 2012, ROBINS's control of selling and

administrative expenses has been up to the target. Accordingly, FY2012 profit

would stand at B2,029m or 40% YoY increase, which is close to our estimation.

2013 profit to increase, but likely to revise down forecast after 4Q12

ROBINS's 2013 profit is likely to rise constantly, especially the profit from

provincial branches that has increased as a result of branch expansion and the

communities that have become more city-like. Recently, the company has made

the branch expansion plan clear, opening 5 more branches this year which would

be located in Kanchanaburi (1Q13), Ubon Ratchathani (2Q13), Sakon Nakhon

(3Q13), and the rest in 4Q13. However, we're likely to revise down our 2013

profit forecast slightly due to the shutdown of Ratchada branch because the

rental contract would expire around late-1Q13 or early-2Q13. The profit from

this branch is projected to contribute 5% to the company's total profit (a big

branch opened for a long period of time with not much appreciation cost left

much, using sum-of-the-year-digits method). Moreover, cannibalization is

projected to happen in Ubon Ratchathani because of the 2nd branch opening. In

4Q13, there would be new branches of Central to be opened in Chiangmai and

Song Khla (Hat Yai) which are believed to affect ROBINS in the beginning. From

our study, Chiangmai branch (ROBINS holds 89.99%) and Hat Yai branch

(ROBINS holds 76%) are the company's big branches, contributing 12% of the

total profit. This is also in line with ROBINS's target that aims at 18% YoY

increase of sales which is less than 2012 target at 20% (24% increase was

accomplished). Preliminary, we maintain our 2013 profit forecast at B2,793m or

35% YoY increase.

Share price already reflects 2013 FV. Reiterate "HOLD"

The share price has already increased to reflect 2013 fair value at B68.

However, we believe that the plan of 5 new branch openings in 4 years from

now would help boost the company's long-term growth. Accordingly, we

recommend "HOLD" for ROBINS.