TRIS Rating has assigned the company rating of Siam Global House PLC (GLOBAL) at “A-” with “stable” outlook. The rating reflects the company’s proven record in the home improvement retailing industry in Thailand, its successful strategy of expanding its warehouse-format stores in provincial areas, and its low operating costs. The rating also takes into consideration GLOBAL’s strengthened capital structure following a capital increase in late 2012. These strengths are partially offset by the company’s long cash conversion cycle and increasing competition among modern home improvement retailers. The “stable” outlook reflects the expectation that GLOBAL will be able to maintain its position in the home improvement retailing industry. The company is expected to improve its inventory and logistics management abilities while it expands. The economies of scale from store expansion and cost control policy should help GLOBAL maintain its profitability despite rising competition in the home improvement retailing industry.
GLOBAL is one of the leading warehouse-style home improvement retailers in Thailand. It was established in 1997 by Mr. Witoon Suriyawanakul. The company was listed on the Stock Exchange of Thailand (SET) in August 2009. In November 2012, SCG Distribution Co., Ltd. (SCGD), 100% owned by Siam Cement Group PLC (SCG), became a strategic partner of GLOBAL after spending about Bt9,000 million to buy a 31.02% equity stake in GLOBAL, through a private placement and a partial tender offer. As of March 2013, GLOBAL’s major shareholders were the Suriyawanakul family (37.36%) and SCGD (31.25%).
The company’s first branch is located in Roi-Et province, which is the founder’s hometown. The company operated eight stores by the end of 2009 and the number of stores climbed to 19 stores at the end of 2012. As of March 2013, GLOBAL owned and operated 21 stores, mainly located in the Northeastern region. The company’s total store area was 504,232 square meters (sq.m.) as of March 2013.
The company offers a wide range of construction materials, hardware tools, and home decorations with approximately 100,000 stock keeping units (SKUs). The company’s stores are designed to be large-scale warehouse style. Each store has an average selling area of 22,000 sq.m.
Sales have continuously increased, rising from Bt3,967 million in 2008 to Bt10,783 million in 2012, a compound annual growth rate (CAGR) of 28%. For the first quarter of 2013, total sales grew by 45% over the same period in 2012, climbing to Bt3,612 million. Same-store sales increased by more than 10% per annum during 2008 through 2011. More recently during 2012-2013, same-store sales grew at a lower rate but the rate was still satisfactory. Same-store sales rose by 9.0% in 2012 and by 8.5% in the first quarter of 2013. GLOBAL’s operating margin before depreciation and amortization was healthy, ranging between 8.5% to 10.1% during 2008 through the first quarter of 2013, thanks to its efficient cost control and economies of scale. However, the company’s inventory level was relatively high during 2008 through the first quarter of 2013, resulting in a long cash conversion cycle of more than 100 days. This long cycle was partly due to the company’s policy to stock a wide variety of products.
GLOBAL’s financial profile improved during the past years. Earnings before interest, tax, depreciation and amortization (EBITDA) climbed from Bt422 million in 2008 to Bt1,257 million in 2012, supported by strong sales growth and stable profitability. Cash flow protection improved despite higher leverage from store expansion. EBITDA interest coverage ratio increased from six times during 2008 to 2009 to about eight times during 2010 to 2012. Cash flow protection dramatically jumped at the end of 2012 and the first quarter of 2013. GLOBAL had nearly zero debt after the huge capital injection from its partner, SCGD. Total debt decreased from Bt2,553 million in 2011 to Bt264 million in 2012, while total equity increased from Bt4,422 million in 2011 to Bt9,254 million in 2012. The ratio of funds from operations (FFO) to total debt continued to rise, leaping from 35.3% in 2011 to 341.6% in 2012 and 37.4% (non-annualized) in the first quarter of 2013.
Looking forward, GLOBAL’s strong capital base will provide ample support for its growth strategy. GLOBAL has unveiled plans to open at least 12 stores per year during the next three to five years. It is developing a distribution centre in Ayudhya province in order to improve operational efficiency. The rapid store expansion will drive leverage higher, but the debt to capitalization ratio is projected to remain below 50% during the next few years. With SCGD as a strategic partner, GLOBAL should leverage SCGD’s expertise in many areas, including logistics management, human resources development, and bargaining power enhancement with suppliers.
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