Siam Global House

Siam Global House Plc (GLOBAL) 

GLOBAL plans more aggressive store expansion of seven new stores (in line with SCBS) this year, with a small SSS growth (vs SCBS at +5%) turning up from -6% in 2014 and gross margin expansion at +30bps from adjustment of its private brand (vs SCBS at +20bps). We like it for better 1Q15 earnings (up YoY and QoQ) and 2-year growth of 28% p.a. backed by a return to growth in SSS (same-store sales), better margin and more stores. BUY with unchanged DCF PT of Bt16.  

 

More aggressive store expansion. In 2015, GLOBAL maintains its store expansion target of seven new stores (vs 5 in 2014), to give it 39 at the end of 2015 from 32 at end-2014. In 1Q15, it targets opening two new stores, in Phetchabun and Buri Ram. Four other new stores are under construction. These are in Bueng Kan, Yasothorn, Nakhon Nayok, and Prachaup Khiri Khan.  

 

Positive SSS growth. After SSS growth turned back up to 1.3% in 4Q14, GLOBAL said that so far this year, SSS continues to show growth. In 2015, GLOBAL expects positive growth (vs SCBS at +5%) from -6% in 2014. The negative is the drop in steel product value of 30-40% YoY despite higher sales volume, the positive is 2014’s low base from several specific factors (Figure 1). The reopening of its Surin store after closing in 2Q14-3Q14 (+2-3% to SSS growth) and fading store cannibalization effect from 2Q15 (+3-4% to SSS growth) will support its SSS growth this year. GLOBAL updates that market competition is unchanged after all the big players have opened new stores in all the big cities over the past few years.  

 

Margin improvement. GLOBAL expects gross margin to expand further after the 20-30bps expansion in 2H14, backed by its new cross-selling product strategy and the change of selling method for its private brand. Strategies for its private brand include appointing direct salespersons to push products and adjusting packaging and pricing, starting in July 2014 and applying this to all stores in Nov 2014. With these, GLOBAL targets raising its private brand to 12% of sales in 2015 from 10.5% in 2014. Normally, the private brand's margin is 35%, higher than the 12-13% for conventional products. GLOBAL’s new private brand target implies a margin improvement of more than 30bps in 2015 (vs SCBS at +20bps). Depreciation expenses will become more stable for the next three years after being shoved up by Bt216mn in 2014 by an asset revaluation, implying stabilized SG&A/sales this year after a jump in 2014.  

 

First DC in 4Q15. The setup of a new automated system will delay the completion of its first distribution center (DC) from mid-2015 to 4Q15. After this is in use, working capital will improve from the reduction of inventory days from 190 to 120 within a year. The expenses related to the DC will be offset by income from suppliers, as delivery will be more convenient for them. 

 

Better 1Q15F. We expect earnings to improve YoY and QoQ, YoY largely from positive SSS growth and margin improvement and QoQ from seasonality, since first quarter is generally high season for the sale of building material products.