Siam Global House
A proxy for return of provincial consumption BUY
Siam Global House Plc (GLOBAL)
GLOBAL’s price outperformance over the past three months (+38% vs. +15% for the sector and +3% for the SET) reflects its outstanding margin expansion and SSS revival. This will continue as it benefits directly from the return of consumption in the provinces brought by government stimulus and better farm income. This, together with its moves to develop its high-margin private brand will give GLOBAL the sector’s best growth in 2Q16F and 2016F. GLOBAL is still trading at 1.3x 2-year PEG (below the sector’s 1.8x). BUY with mid-2017 DCF PT of Bt15.
Gain on stimulus and better farm income. With all of its sales coming from the provinces, GLBOAL will lead its sector in terms of gaining from the return of provincial consumption brought by stimulus and better farm income in 2H16F. Since Sep 2015, the government has used economic stimulus measures worth a total of Bt645bn. Of this, Bt354bn (55%) was disbursed in 4Q15-1Q16, and Bt116bn (18%) will be disbursed in 2Q16-4Q16F. Meanwhile, based on the latest forecast by the Thai Meteorological Department, the impact of El Nino (bringing the drought) will abate in May-July 2016 and will be followed by La Nina, bringing agricultural production back up in 2H16.
Positive SSS in 2016F. In 2Q16TD, SSS growth was relatively flat (vs. +2.5% in 1Q16 and +4.4% in 2Q15), due to higher volume offsetting lower construction material prices (steel and cement-related products, accounting for 30% of sales). In 2016F, it targets SSS growth of 2-3% (vs -0.8% in 2015), with higher sales volume in tandem with economic revival and less of a hit from the fall in construction material prices this year.
More aggressive expansion. GLOBAL plans to open eight new stores in Thailand in 2016: Salaya, Chiang Rai, Kanchanaburi, Surat Thani, Nakhon Si Thammarat, Singburi, Samut Songkram, and Patum Thani. The competitive landscape appears better, with competitors slowing expansion. It does not anticipate cannibalization from this year’s new locations. Its investment overseas is progressing, after it took on Souvanny Home Center (with four stores) in Laos in Sep 2015. It is negotiating with locals that own existing and profitable stores, namely Pro 1 Home Center, in Myanmar (operating three stores, planning to open three more), expecting to wind this up in 2016.
Continued margin expansion. In 1Q16, its gross margin jumped to 19.6% (+470bps YoY) or to 18.0-18.5% (+320-370bps YoY), if excluding the benefits of higher steel product prices. In 2Q16TD, its gross margin was even better QoQ (+290bps YoY), backed by better private brand management and more bargaining power with suppliers and relatively unchanged steel price QTD. By adding new products and appointing more direct salespersons, GLOBAL hopes to lift the portion of private brand to sales to 15% in 2016 (vs. 12% in 2015). With continued aggressive expansion (adding 5-7 stores in 2012-15 and 8 stores in 2016F), GLOBAL will become market leader in terms of store numbers for Thai modern trade construction material retailers (GLOBAL, Thai Wasadu, and Mega Home) this year, enhancing its bargaining power with suppliers.
