Siam Global House

Siam Global House Plc (GLOBAL)

 

GLOBAL is taking 40% in Souvanny Home Center, which distributes construction-related and home improvement products in Laos. By our estimates, existing stores alone will add at least 0.5% to earnings in 2015F (4Q15F) and 2% in 2016F, but this will go up with the expected rapid expansion. Its robust 3Q15F earnings and overseas expansion will be share price catalysts. Maintain BUY with a mid-16 DCF PT of Bt13.5. 

 

What’s new? GLOBAL House International Co. Ltd (50% held by GLOBAL and 50% by SCC) has invested in Souvanny Home Center PCL. Its stake is 40% now, but this will reduce to 34% after the company lists on the Laotian Stock Exchange (LSX). Souvanny Home Center is the country’s largest distributor, specializing in construction-related and home improvement products. The capital from the listing will be used to expand the store network and as working capital to facilitate rapid growth. 

 

What is Souvanny Home Center? The company operates four stores in Vientiane, in Phontong-savath, Sykhai, Thongkhankham and Thongtoum. Souvanny Home Center plans list on the LSX and will increase registered capital to Bt1.32bn from Bt1.12bn. IPO proceeds will be used to add three new stores: one on 450-Year Road (Vientiane), and in Pakse, and Paksan. It has seven product category groups: 1) ceramic and structure products; 2) roofing products; 3) painting and pipe products; 4) electrical and tools products; 5) sanitary ware products; 6) lift and escalator products; 7) furniture products. It imports around 80% of its products from Thailand, and the rest from countries such as China and Indonesia. Revenue was Bt1.25bn in 2014, Bt1.1bn in 2013, and Bt922mn in 2012, with profit of Bt85mn in 2014, Bt57mn in 2013, and Bt43mn in 2012.  

 

Comment.  

 

We expect this deal to add 0.5% to GLOBAL’s earnings in 2015F (4Q15F) and 2% in 

 

2016F, based only on existing stores, but will rise in tandem with the rapid expansion planned. This is in line with GLOBAL’s target: any investment overseas will be earnings accretive within the first year.  

 

This represents GLOBAL’s first step outside Thailand but it is not sitting down. It continues to work on investment in Myanmar and Cambodia, which it sees as offering an attractive market size that is suitable for its format, product assortment and customer preferences, which are similar to Thailand. Choosing neighbors also makes logistics management easier. A key advantage compared to other Thai retailers for overseas expansion is support from SCC in terms of market knowledge, and from local partners for land acquisition and local staff management. 

 

 We maintain BUY on GLOBAL with mid-2016 DCF PT of Bt13.5. Its outstanding 3Q15F earnings and first steps outside Thailand will be share price catalysts.