Siam Global House

Siam Global House Plc (GLOBAL)

 

For over a year, GLOBAL has been the sector’s chief laggard (-22% vs. -11% for the sector), pulled down by the poorest net profit at -21% in 2014 and -5% in 1Q15. This is set to reverse, with profit improving YoY from 2Q15F, backed by operational improvement and no repeat of 1Q15’s steel inventory loss. With better SSS growth, aggressive expansion, and wider margin, GLOBAL is in position to report the sector’s best growth at 30% in 2016F. BUY with a DCF PT of Bt12. 

 

Sector’s best SSS growth in 2Q15TD and 2015F. In April-May 2015, SSS growth improved to +2-3% (vs. +0.4% in 1Q15 and -11.3% in 2Q14), off last year’s low base. Behind this was fading store cannibalization upon a full year of operations at Udon Thani, Nong Khai, and Chonburi (3-4% to SSS growth) and the reopening of its Surin store, closed five months after a concrete wall collapsed in May 2014 (2-3% to SSS growth). Without 2014’s problems of cannibalization and Surin store closure, we expect GLOBAL to report the sector’s best SSS growth at 3% in 2015F (vs -6% in 2014).  

 

Sector’s most aggressive store expansion in 2015-16F. GLOBAL has committed to the sector’s most intensive store expansion at seven stores p.a., +22% YoY in 2015F and +18% YoY in 2016F. In 1Q15, it opened two stores, in Petchaboon and Burirum. It will open a store in Nakorn Nayok in 3Q15 and four more, in Surat Thani, Nakhon Si Thammarat, Prachuap Khiri Khan and Bueng Kan, in 4Q15.  

 

Margin widening. GLOBAL expects gross margin to expand further after the 15-30bps expansion in 3Q14-1Q15, backed by its new cross-selling product strategy and a switch in the way it sells its private brand. Strategies for its private brand include appointing direct salespersons to push the products and adjusting packaging and pricing. This began in July 2014 and was applied to all stores in Nov 2014. GLOBAL expects this to raise sales of its private brand to 12% of sales in 2015F from 11% in 1Q15 and 10.5% in 2014, good news for margin since margin on its private brand is 30-40% compared to the 12-13% for other brands. At end-2015, GLOBAL plans to open a new distribution center (DC), improving its supply chain and paving the way to expanding the portion of its private label products in the future. 

 

Earnings turning point in 2Q15, reversing recent underperformance. A 22% drop in share price over the past twelve months already incorporates all the negatives (the sector’s worst net profit, with the worst SSS growth in 2014 plus steel inventory loss of Bt21mn in 1Q15 from lower steel price). The share price underperformance should be eliminated after positive earnings growth YoY from 2Q15, grounded in operational improvement (off last year’s low base – cannibalization and Surin store closure) and the absence of steel inventory loss after steel price bottomed in March 2015. With the revival of SSS growth (+4%), aggressive store expansion (+18%), and wider margin, GLOBAL is set to show the sector’s best growth at 30% in 2016F.