THURSDAY, March 28, 2024
nationthailand

Siam Global House

Siam Global House

Strong growth continuing BUY

Siam Global House Plc (GLOBAL)

GLOBAL has outperformed its sector and peers for the past six months in response to its growth outperformance (+80% YoY vs. sector’s +19% YoY in 1H16). With margin continuing to improve, expansion on track and better SSS, 2H16F will again be outstanding YoY. More catalysts lie in progress in moves in Myanmar and Cambodia. GLOBAL trades at 0.9x 2-year PEG, below the sector’s 1.8x. BUY with mid-2017 DCF PT of Bt18.
 
Healthy margin continuing in 3Q16TD. In 3Q16TD, gross margin remains healthy at above 20% (+190bps YoY), from better private brand management and more purchasing power. GLOBAL plans for the portion of its private brand to sales to rise from 12.5% in 1H16 (vs 11% in 1H15) to 15% within the next couple years and it expects its bargaining power with suppliers to continue to strengthen on the basis of better economies of scale brought by steady expansion as it becomes one of Thailand’s lead construction material retailers. GLOBAL targets a gross margin of above 20% in 2016F (+310bps YoY), after already reporting 20.2% in 1H16 (+440ps YoY).
 
Better SSS growth in 3Q16TD. Despite the continued hit from declining construction material prices (30% of sales), SSS growth turned up to 1-2% YoY in 3Q16TD from -4.5% in 3Q15 and -1.2% in 2Q16, undergirded by improving sentiment and better farm income. GLOBAL targets a small positive 2016 SSS growth (vs. +1% in 2016TD). 
 
Aggressive local expansion plan maintained. GLOBAL is continuing its ambitious plan of opening eight new stores in 2016: Salaya and Patum Thani in 2Q16, Singburi, Samut Songkram, and Chiang Rai in 3Q16F, and Kanchanaburi, Surat Thani, Nakhon Si Thammarat in 4Q16F. The competitive landscape is brighter, as other players are slowing expansion. It does not see cannibalization from this year’s new store locations.
 
Progress on overseas expansion. In 4Q15, GLOBAL House International (50% held by GLOBAL and 50% by SCC) took 34% in Souvanny Home Center (the sole modern trade retailer in Laos), which has two big stores and plans to add two new stores in 4Q16 and another two in 2017. This investment contributed Bt10mn to GLOBAL’s equity income in 1H16 (+1% of earnings); the expansion implies more equity income ahead.  
 
GLOBAL is looking over more investment opportunities in Myanmar and Cambodia, with progress to be seen in late 2016 to early 2017. In Myanmar, after completing talks with a JV partner, it is working out the regulatory side. The investment will be similar to that in Laos: a JV with a local partner that owns existing and profitable stores and has plans to add 2-3 stores yearly. In Cambodia, it has talked in principle with a local partner. The investment will be greenfield, with plans to expand 2-3 stores p.a. and profit within the first year of operation, similar to Thailand. Once it completes its overseas expansion, GLOBAL expects LT synergies from: 1) higher sales of existing and new products; 2) better margin from greater economies of scale and more private brands; 3) better logistics and inventory management. 
 
Still Buy with mid-2017 DCF PT of Bt18. GLOBAL continues to outshine peers in terms of growth and has more irons in the fire abroad that will spur growth further.
 
GLOBAL is trading at 0.9x 2-year PEG, below the sector’s 1.8x. Buy.
 
 

 

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