Siam Global House

Investment thesis

We have cut our FY14-15 earnings forecasts by 11% and 18%, respectively, to factor in the downsized store rollout and the firm’s less aggressive expansion plan. Our FY14 projection is 21% below the street, but we expect a consensus downgrade in the near future. GLOBAL is very expensive—PERs of 56x for FY14 and 46x for FY15. It is both the weakest performer and the most expensive among our Retail coverage. We maintain our SELL rating with a new YE15 target price of Bt11 (down from Bt13.50 following our earnings forecast downgrade).  

Sales remain weak

Weak consumer spending, cannibalization at the Udonthani store and the closure of the Surin outlet caused GLOBAL’s SSS to slip 7.4%YoY  in 3Q14. Even excluding the Surin store, SSS was still down 4.8%. The CEO believes the worst has passed and sales will gradually pick up, especially after rice harvest season in November. He shares our view that SSS will turn around to growth next year, due to the very low base set by FY14. However, he declined to speculate on how strong the recovery will be, as he wants to see December numbers first. We expect a slow recovery, as a high household debt level and low crop prices constitute headwinds. SSS is likely to dip 3% in 4Q14 and rise 3.9% in FY15.

Expansion delays again!

GLOBAL cut its expansion guidance again to only five new stores in FY14, due to construction delays. Recall that the firm had early this year set a target of opening 12 new outlets, but delays forced it to reduce guidance to seven in 3Q14 and now to five. Management said the delays were due to problems with in-house construction, so the firm decided to hire a professional contractor to build the stores. The outsourcing will push up construction costs by 25%, but may ease the delay problems, which have dogged GLOBAL for the past three years. Note that the firm targeted opening 12 stores/year but achieved only seven stores a year during FY12-13 and will manage only five in FY14.

Seven stores next year?  

GLOBAL’s history of slow construction has made it cautious in its FY15 branch expansion guidance. It eyes having seven new stores next year, of which three stores will debut in 1H15. But there is still delay risk, we believe, as four out of seven locations to open next year will be built by the in-house team. We have cut our new store assumptions to five (from seven) for FY14 and to seven (from 10) for FY15.