Securities firms see 50% hit to Q2 retail profits

Securities firms see 50% hit to Q2 retail profits

As a result of Thailand's nationwide lockdown in the second quarter in response to the pandemic, securities houses expect net profit in the retail sector to decrease by 50% year-on-year.

Measures like banning the sale of alcohol in April and a suspension of non-food sales for half a quarter, as well as branch closures to control the virus outbreak, made the second quarter the worst-performing quarter for retail in years, said Maybank Kim Eng Securities Thailand (MBKEST).

Retail companies with heavy stakes in food such as CP All (CPALL) and Siam Makro (MAKRO) will be less affected, but Berli Jucker (BJC) and Home Product Center (HMPRO) are expected to suffer heavy losses in earnings from rental spaces.

Despite being less affected, CPALL suffered significantly from the lockdown, even with a large network of 7-Eleven branches and efficient operations, according to MBKEST research.

"We expect that the sector has already bottomed out and will recover in the second half of this year," MBKEST said.

Household consumption will likely begin to increase from the lockdown measures that curtailed domestic consumption at the beginning of the quarter.

The delays in opening travel bubbles between countries that have good travel potential, combined with worse-than-expected domestic travel, have caused the economic recovery momentum to be slower than expected, MBKEST said.

CPALL has strong fundamentals in the retail sector but has still been hurt by the outbreak, Tisco Securities said.

CPALL's net profits for 2020 and 2021 will drop 15% and 13% year-on-year, respectively, because of the city lockdown, Songkran holiday cancellation, work-from-home policies, the alcohol ban, declining tourist numbers and the curfew, the securities house said.

This will cause SSSG (same-store sales growth) in April and May to drop by about 25% year-on-year, with a milder blow in June after the end of the lockdown and curfew, according to Tisco Securities.

The company's future performance depends on the evolving pandemic situation. But with the end of the lockdown and a decline in people working from home, schools reopening and measures to stimulate domestic travel from July 1 to Oct 21, the company's SSSG will be bolstered in the third quarter, Tisco Securities said.

Tisco forecasts 7-Eleven's SSSG to drop 7% year-on-year in 2020 but bounce back by 5% year-on-year in 2021.

Net profit will likely decrease 8% year-on-year to 21.1 billion baht in 2020 before increasing 13% year-on-year in 2021.

Tisco Securities identifies CPALL as having the potential to recover, while noting that BJC still has a problem with rental losses and MAKRO suffers from a limited number of branches.

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