Siam Global House

Siam Global House Plc (GLOBAL)   
 

1Q16 net profit was Bt452mn (Bt0.13/sh), +108% YoY and +139% QoQ, 40% above our estimate and 67% above consensus on a stronger-than-expected gross margin of 19.5% (+470bps YoY). Excluding FX gain of Bt1mn, 1Q16 core profit was Bt451mn, +90% YoY and +109% QoQ. The improvement YoY was backed by a positive SSS growth, store expansion and margin enhancement. The jump QoQ was seasonal.  

 

1Q16 highlights. 

 

 Revenue was Bt5.2bn, +14% YoY, backed by positive SSS growth and store expansion. SSS growth was +2.5% YoY (vs. +0.4% in 1Q15 and -3.5% in 4Q15), thanks to higher volume offsetting lower construction material prices (steel and cement-related products, accounting for 30% of sales). It did not open a new store in 1Q16 and still operated 38 stores at end 1Q16 (+12% YoY).  

 

 Gross margin jumped to 19.5%, +470bps YoY, backed by: 1) greater proportion of private brand to sales (12% in 1Q16 vs 10.5% in 1Q15) after it hired more direct salespersons to push products and added more new products; 2) better margin on steel products (low steel inventory costs after recording an inventory loss in 2H15, with steel price rebounding in Feb-Mar). Even excluding the benefits of higher steel product prices, its gross margin would be 18.0-18.5% in 1Q16 (+320-370bps YoY).  

 

 SG&A/sales rose to 11.1%, +20bps YoY, from additional expenses from expansion.  

 

Company guidance. In April, SSS growth improved to +4% YoY (vs +2.5% in 1Q16) on higher sales volume and a rise in steel price, while its gross margin remained healthy backed by strong private brands and better margin on steel products. In 2016, GLOBAL targets SSS growth of 3%, addition of at least 8 new stores, and better gross margin (excluding plus from higher steel price) to 18.0-18.5% (vs. 16.9% in 2015). Its investment overseas is progressing, after it took on Souvanny Home Center (operating 4 stores) in Laos in Sep 2015. It is working on investing in Pro 1 Home Center in Myanmar (operating 3 stores, planning to open 3 stores), hoping to complete this in 2016.  

 

Raised forecast. We raised earnings by 12% to Bt1.2bn in 2016F and 10% to Bt1.4bn in 2017F, to incorporate: 1) a higher SSS growth of 2.5% in 2016F and 3.0% in 2017F; 2) a higher gross profit margin of 18.6% (+170bps YoY).  

 

Maintain BUY. We maintain BUY with a new DCF PT of Bt14 (from Bt12.9), after the earnings revision. We like GLOBAL as the sector’s best performer in 2016F with the highest earnings growth (40% vs. sector of 21%), as well as potentially the leader in 2Q16F earnings growth YoY (from preliminary data in April), and progress on new investment in Myanmar this year.