Siam Global House

Siam Global House Plc (GLOBAL) 

 

For the past 12 months, GLOBAL has been the sector’s chief laggard (-25% against -10% for the sector). This is no surprise as it has turned in the worst net profit in the sector at -21% in 2014 and -5% in 1Q15. This status is set to reverse as it reports better profit YoY from 2Q15F onwards, backed by better same-store sales (SSS) growth, vigorous expansion, better gross margin from better management of its private brand, and no repeat of steel inventory loss. Maintain BUY with a new DCF PT of Bt12. 

Better SSS growth in 2Q15TD. In April-May 2015, SSS growth improved to 2-3% (vs 0.4% in 1Q15 and -11.3% in 2Q14). This was backed by 1) fading store cannibalization (full year of operations at Udon Thani, Nong Khai, and Chonburi, 3-4% to SSS growth); 2) the reopening of its Surin Store (5-month closure after a concrete wall collapsed in May 2014, 2-3% to SSS growth). GLOBAL says steel price bottomed in March, albeit still down 10-20% YoY. This implies it will not need to record a steel inventory loss (Bt21mn in 1Q15). Taking into account the effect from the dip in steel price from last year (-1% to 2015F SSS), GLOBAL targets SSS growth of 3% in 2015F (vs. -6% in 2014). Figure 1: Adverse events led to negative SSS growth in 3Q13-3Q14.  

Key events Our estimation for SSS impact 

The opening of GLOBAL's second store in Udon Thani in Feb 2014 -1-2% The opening of Megahome in Nhong Khai in Feb 2014 -1% 

The opening of Megahome in Chonburi in April 2014 -1% The closure of GLOBAL's Surin store in May-Sep 2014 -2-3% 

Source: Company data and SCBS Investment Research 

Still plans seven new stores in 2015F. 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. It believes the locations of this year’s new stores will not bring the cannibalization encountered in 2014. 

Margin improvement ahead. GLOBAL expects gross margin to expand further after the 15-30bps expansion in 3Q14-1Q15, backed by its new cross-selling product strategy and the change of selling method for its private brand. Strategies for its private brand include appointing direct salespersons to push products and adjusting packaging and pricing. This began in July 2014 and was applied to all stores in Nov 2014. GLOBAL expects this to push sales of its private brand to 12% of sales in 2015F from 11% in 1Q15 and 10.5% in 2014. This will help margin as margin on its private brand is 30-40%, much higher than the 12-13% on other brands. GLOBAL’s new private brand target implies a margin improvement of about 30bps in 2015 (vs. SCBS at +15bps). 

Maintain BUY with new DCF PT of Bt12 (from Bt13.5). We trim 2015F by 5% as we factor in the Bt21mn steel inventory loss in 1Q15 and cut SSS growth to reflect lower steel price. A 25% 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 in 1Q15). Catalysts for share price will be the better profit YoY from 2Q15F, backed by better SSS growth, energetic expansion, a better gross margin, and the absence of steel inventory loss. Key risks are changes in SSS growth and margin from competition and market sentiment, and in store expansion.