Siam Cement and Siam Global House

Siam Cement Plc (SCC) and Siam Global House Plc (GLOBAL)

What’s new?

SCC and GLOBAL will set up a 50:50 joint venture, Global House International (GHI), to expand retail business in ASEAN. The first targets for market entry are Myanmar, Cambodia and Laos, while Indonesia will be in the second phase. Both SCC and GLOBAL will account for GHI as equity income.
The store format will be the same as GLOBAL’s stores in Thailand and “Global House” may continue to be the store brand. Management said if all processes go as scheduled, GHI should open its first outlet in Myanmar next year.
Right time to start
The building materials stores look to be the retail format best-suited to Myanmar, Cambodia and Laos, as the three countries are all in the early phases of property and infrastructure development. We believe market entry at this stage would endow the venture with first-mover advantage, so the business has a good chance of being successful.
Neutral for SCC, but negative for GLOBAL in the short-term
We expect GHI to post losses for at least the next 3-4 years; the magnitude will depend on how aggressively GHI rolls out new stores. The losses would have only a negligible impact on SCC’s earnings, given its size, but would squeeze GLOBAL’s bottom-line hard (similarly to HMPRO’s market entry of Malaysia). Moreover, if GHI were to expand aggressively, GLOBAL’s small capital base might force it to either make a cash call or dilute its stake in GHI.