Retail Sector Analysis: 4th Quarter Performance
The CGS-CIMB (Thailand) Securities Research Department has conducted an analysis and found that traditionally, the 4th quarter is a period of strong performance for retailers. This is due to increased consumer spending during the year-end festival season. However, in the 4th quarter of 2023, there has been a noticeable trend of weaker sales, which may impact the profit share for most retail stores, falling below historical averages. This is attributed to various factors such as declining purchasing power and a slowdown in consumer spending amidst an economic downturn.
Survey Results
The survey of same-store sales growth (SSSG) of retailers during October-November revealed a weakening demand for luxury goods. The CRC fashion group in Thailand experienced a SSSG of -1%, while the hardline group and home improvement groups saw negative SSSG, pointing towards a downward trend in sales for these categories.
Looking ahead, the CGS Research Department anticipates a further decline in luxury goods spending in December, as middle to high-income consumers may hold back on purchasing expensive products, waiting instead to benefit from the upcoming e-tax refund project effective from January 1 to February 15, 2024.
Performance Expectations
Positive same-store sales growth is expected for retailers of food products in October-November period, with brands like 7-11, Makro, and Thailand Lotus showing promising SSSG figures. However, a decline in non-food product sales, particularly in hardline categories, presents a challenge for some retail stores during this period.
Despite the anticipated weak sales, the CGS Research Department sees this as an opportunity for investors to accumulate stocks at attractive prices, as 2024 is expected to be a better year for retailers. The government’s economic stimulus measures, including the e-tax refund project and the digital wallet project, are anticipated to boost overall retail performance in the coming year.
Stock Recommendations
For investors eyeing the retail sector, stocks of companies with a high percentage of floating rate loans, such as CRC and DOHOME, are believed to be worth considering in the second half of next year. The research department recommends an ‘Overweight’ stance in the retail sector, with CPALL and DOHOME being the preferred stocks in the group.
Furthermore, specific target prices have been set for key stocks in the retail sector, with CPALL expected to exhibit strong EPS growth and Dohome projected as the best turnover play stock in 2024.
Market Outlook
While the retail sector faces some downside risks, including higher electricity costs and possible wage hikes, the positive factors such as strong foreign tourism statistics and increased exports are expected to stimulate domestic consumption.
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Mitistock – CGS-CIMB (Thailand) Securities Research Department said in the analysis that the 4th quarter is usually the quarter in which retailers will have the strongest performance. Because consumers are actively buying products during the year-end festival period, In 2018-2022, sales and profits operated normally in the fourth quarter of retailers. The average share was 26.8% and 30.7% of the total for the whole year, but in the 4th quarter of this year it was seen that sales tend to be weaker. This can cause the profit share in the 4th quarter of most retail stores. Below the historical average
This comes from a survey of same-store sales growth (SSSG) of retailers during October-November. 66 found that demand for luxury goods had weakened. There should be a cause. 1. purchasing power is falling This is because household debt and interest rates are rising. 2. Consumers slow down spending due to the economic situation which tends to slow down. Including the effect of falling wealth after the SET index fell sharply.
In the months of Oct.-Nov. 66 The CRC fashion group in Thailand should have a SSSG of -1%, the hardline group in Thailand should be at -3%, and all Home Improvement groups of entrepreneurs should have a negative SSSG (HMPRO -5%, WORLD- EANG -12.5%, DOHOME -1%, and Thai Watsadu, a subsidiary of CRC -3%)
The CGS Research Department believes that spending on luxury goods in December may fall further. As middle to high income consumers You may hesitate to buy expensive products. By purchasing in January 2024 instead to benefit from the e-tax refund project which will be effective from 1 January – 15 February 2024.
For retailers of food products The research department expects SSSG to be positive in October-November. 66 (7-11 +3%, Makro +3%, Thailand Lotus +5%, BigC +0.1%, CRC supermarkets in Thailand: +0.5%) It is believed that Lotus Thailand should have the highest SSSG in the group. Supported by adapting the strategy to sell more food products.
The research department also expects Lotus competitor BigC to have increased food sales in October-November. 2023 also, however, sales of non-food products In particular, BigC’s hard line products have decreased a lot. Therefore, it is expected that BigC’s same-store sales will not grow during this period.
Although sales are expected to be weak this may put pressure on retail stock prices during this period. But sees it as an opportunity to accumulate stocks at an attractive price because 2024 is likely to be a better year for retailers. As a result of the government’s economic stimulus measures such as the e-tax refund project and the digital wallet project.
Retailers with a high percentage of floating rate loans such as CRC and DOHOME are believed to be on investors’ radar in the second half of next year. Because interest rates are expected to be cut in 2025, we still recommend Overweight in the retail sector, with CPALL and DOHOME as the group’s main preferred stocks.
CPALL has a target price of 76.50 baht, expecting strong EPS growth in 4Q23 and 2024, helping to support the stock price. Additionally, the current valuation at 21 times P/E in 2024 is still interesting. Dohome has a target price of 14.60 baht. It is expected to have the strongest EPS growth. This is the best turnover play stock in the retail sector in 2024 because it will have SSSG, returns, higher gross margin and operating leverage
For CRC, the target price is 46.25 baht. Although the stock price is expected to have a negative sentiment when reporting weak earnings in the 4th quarter, we believe it is a good opportunity to buy stocks before EPS recovers strongly in the second half of the year 66 and 68
The research department sees downside risk in the retail sector. It will come from higher electricity costs. If the government does not renew the electricity subsidy measure and raise the minimum wage The positive factor is the strong foreign tourism statistics. and more exports Should help stimulate domestic consumption.
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