Siam Global House

Siam Global House Plc (GLOBAL)

13% below estimate
GLOBAL reported a 2Q13 net profit of Bt229bn, up 53% YoY but down 23% QoQ. The figure was 13% below our estimate, due to a Bt30m FX loss (subtracted from other income). Excluding the loss, profit would have been in line with our model.
Results highlights
Sales increased 40% YoY to Bt3.6bn, mainly attributable to rapid expansion. SSSG was 6.4% in 2Q13 and 7.3% for 1H13, which was GLOBAL’s lowest growth rate since 4Q10. The general consumption growth slowdown appears to have affected its operation.
Gross margin declined to 15.2% in 2Q13 from 15.3% in 2Q12, due to higher sales of low-margin products. The SG&A/sales ratio rose to 9.7% from 9.4% in 2Q12 on higher wage costs, employee bonuses and pre-operating expenses for new stores. As a result, EBIT margin slimmed to 5.5% in 2Q13 from 5.9% for the same quarter last year.
Outlook
SSSG should remain slow in 3Q13, dampened by the consumption slowdown. Management expects SSSG to pick up in 4Q13 and maintains its SSSG target at 10% for FY13, but we believe that view is too optimistic. We have cut our FY13 SSSG assumption to 8% from 8.9%. However, bottom-line growth should remain robust in 2H13, thanks to aggressive expansion. GLOBAL has opened seven stores YTD (five stores in 1H13) and reaffirms its plan to roll out 12 outlets this year.
What’s changed?
We have cut our FY13 earnings forecast by 4% to factor in the FX loss and our diminished expectation for SSSG. Our YE13 target price stands unchanged.
Recommendation
We like GLOBAL for its solid growth profile. Despite the consumption slowdown, the firm should still deliver strong earnings expansion. Its current valuation may look expensive—an FY13 PER of 46.5x—but its robust growth profile (a three-year earnings CAGR of 63%) should bring down its PER to 29.4x for FY14 and to 20.6x for FY15, which in our view is justifiable. We maintain our BUY rating with a YE13 target price of Bt23.50.