Siam Global House

GFPT Plc 

Investment thesis

Although we expect that GLOBAL’s performance has already bottomed out, we still don’t think it is a good time to take a position in GLOBAL as its recovery looks set to be slow. Moreover, we think its current PER of 46.3x 2015 is expensive and would fail to be justified by expected earnings growth of 12% in 2015. Even adjusting for the impact of asset revaluation, its PER would still be 36.3x for FY15, versus the peer average of 28.8x. We maintain our SELL rating with a YE15 target price of Bt11.

SSSG continues slow

Although SSS turned around to growth of 1.2% in 4Q14 and has continued in positive growth territory YTD, the recovery seems yet to be showing sufficient strength. GLOBAL expects SSS to flattish or to slightly increase this year despite the low base set by cannibalization and the closure of the company’s Surin store in 2Q14-3Q14. The higher volume sales will be offset by lower ASP, particularly in the steel price.

Opening of seven new stores in 2015 confirmed

The year 2015 may be the first since 2012 that the firm achieves its expansion target. The plan to debut seven new stores this year (two in 1H15 and five in 2H15) does not appear too aggressive and six those are under construction. The possibility that construction will be delayed as happened in prior years should also be small as in-house construction teams have been refurbished and two out of seven new stores will be built by professional contractors.

DC delays again

DC opening has been rescheduled again from mid-2015 to late 2015, as GLOBAL wants to change the DC operating system to an Automated Storage and Retrieval System (AS/RS). Management said that this system can reduce human error and requires less manpower. However, due to the high investment cost of Bt200m (system only), the benefit from DC in terms of margin expansion (from cost saving) may not be seen until 2018.

Margin to see boost through private labels

Management believes that a recently-built team to specifically take care of private labels (mainly imported goods) will help the firm to increase the proportion of private labels in the sales mix from 10% in 2014 to 12% in 2015. Based on our estimate, for every 1% rise in the proportion of private brands, gross margin will increase by 22bps ceteris paribus. However, given that competition is intensifying, we expect gross margin to expand by half or 22bps for 2% increase in the proportion of the private labels on the shelves.