• Expect 2Q18F profit to come in at Bt695m (+16% yoy, -9% qoq), driven by 1.5% SSSG and higher rental income
• Recovering farm income would support spending in provincial areas in 2H18
• NEUTRAL, TP Bt67/sh; cheap valuation is justified by less resilient and slower earnings growth than peers

Expect decent 2Q18F results due to low base last year

Consumer spending remained resilient in major cities but soft in upcountry where residents rely on farm income, given sluggish farm prices. However, SSSG should turn positive for ROBINS for the second consecutive quarter in 2Q18, at 1.5% yoy (-4.7% in 2Q17, +1.8% in 1Q18) given the low-base effect. This would lead sales to grow 4% yoy to Bt6.3bn, but drop 4% qoq on seasonality. Share of private brand sales should be in line with 2Q17 at 11% of total sales, which would keep GPM stable at 24.8% (-0.7ppt qoq due to The Greatest Grand Sale event in June). ROBINS opened one lifestyle store in late June with 36k sqm gross area in Chonburi, which would raise total rental area by 15k sqm to 415k sqm (99% occupancy rate). We expect rental income to come in at Bt903m (+11% yoy, +1% qoq). There were no special expenses in the quarter, and SG&A costs should rise to Bt2.0bn (+2% yoy) in line with higher sales and new store openings. Associate income (from Super Sport and Power Buy) should grow 5% yoy and 3% qoq to Bt135m driven by World Cup event. Overall, we estimate net profit at Bt695m, taking 1H18F profit to 47% of our full year forecast. We see limited downside to our earnings forecast.

Rural spending should improve mildly in 2H18 amid higher farm income

Recovering farm income and higher wages would support purchasing power and drive up spending in provincial areas. Hence, we remain optimistic SSSG would remain mildly-positive or at least flat in 2H18. Meanwhile, GPM should improve following a larger share of contribution from private brands, absence of grand sale campaigns, and less clearance stock. We continue to prefer retailers of consumer staples and those with large exposure in Bangkok given more resilient consumption than upcountry, which suggests lower earnings risk. ROBINS will open one more lifestyle store in Chaiyaphum (in December) with 32,000 sqm gross area to take their network to 48 stores nationwide.

Cheap valuation but no near-term share price drivers

Our TP assumes 7.5% WACC and 2.0% LTG, and implies 24x FY18F PE or at -0.5SD of its 5-year historical average multiple, to reflect slower earnings growth. Although ROBINS’ valuation is cheaper than peers, it is justified by relatively less resilient and slower earnings growth than peers. There are no near-term share price drivers, while the growing online shopping industry would be a major threat to department stores in the long run.