Siam Global House

Siam Global House Plc (GLOBAL)
Investment thesis
We have initiated coverage on GLOBAL with a BUY call and a YE13 target price of Bt23.50. The attractiveness of the stock lies in its superb growth profile. We expect the firm to deliver a three-year earnings CAGR of 64%, FY13-15—the fastest in the Thai Consumer sector. As such, although GLOBAL may look expensive with an FY13 PER of 43x, its robust growth profile should bring down its PER to 28x for FY14 and 19.6x for FY15, which in our view is justified. Moreover, there may be some scope for upside from expansion abroad, which would extend its growth story for longer.
The fastest-growing Retail stock under our coverage
GLOBAL’s aggressive expansion (and the small base effect) should enable it to expand its sales space at a 3-year CAGR of 39% and a 5-year CAGR of 31%. The firm had 20 stores at YE12 and targets opening 12 outlets this year. Over the longer-term, it plans to maintain a rollout rate of 12-15 locations a year, which looks achievable. We estimate that GLOBAL could eventually have 80-100 stores nationwide, almost 4x what it has today.
Fully equipped for growth
The three factors that used to be weaknesses—capital, operational efficiency and human resources—have transformed into competitive strengths since SCC became a major shareholder in the firm. Besides Bt3.1bn in cash received from the private placement, SCC’s extensive knowhow and proven track record in operational improvements and human resource development should help GLOBAL maintain aggressive expansion over the long-term.
Distribution Center to boost profitability and improve cash cycle GLOBAL’s first DC is under construction and is expected to be completed early next year. Inventory turnover should then decline from 150 days to 120 days within one year and to 100-110 days over the longer-term. As such, we expect profitability to rise markedly on lower logistics costs and improved shelf efficiency. Moreover, the shorter cash cycle should mitigate the need to borrow, which would not only strengthen the balance sheet, but would also make for lower future interest expenses.
Scope for upside from regional expansion
Like many other Thai retailers, future expansion is not limited to Thailand. Penetration overseas, particularly into ASEAN, would be an obvious further chapter in GLOBAL’s growth story. Indonesia would probably be the next country in which the firm would open for business, given that its biggest single shareholder, SCC, has substantial local knowledge of customers, markets and business practices there.