TRIS Rating has affirmed the company and senior debenture ratings of Siam Global House PLC (GLOBAL) at “A-” with “stable” outlook. The ratings reflect the company’s proven record in the home improvement retailing industry in Thailand, successful strategy to expand its warehouse-format stores in provincial areas, and low operating costs. The ratings also take 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 intense competition among modern home improvement retailers. The current economic slowdown and lower farm income, which adversely affect the purchasing power of provincial consumers, are rating concerns. 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 on the back of support from SCG Distribution Co., Ltd. (SCGD)’s expertise, 100% owned by Siam Cement Group PLC (SCG).
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, SCGD became a strategic partner of GLOBAL after spending about Bt9,000 million to buy a 31.02% equity stake in GLOBAL. As of March 2014, 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. As of February 2014, the company operated 28 stores with total store area of 693,509 square meters (sq.m.). GLOBAL offers a wide range of construction materials, hardware tools, and home decoration items, amounting to approximately 100,000 stock keeping units (SKUs). The company’s stores are designed in a large-scale warehouse style. Each store has an average selling area of 22,000 sq.m.
In 2013, total sales grew by 33% over the same period in 2012, climbing to Bt14,302 million. This rise was mainly due to the sales in new stores, which GLOBAL successfully expanded during 2012-2013. Same-store sales grew at a lower rate of 1.5% in 2013. Same-store sales growth was weighted down by the drop in purchasing power of provincial customers on the back of low farm income and economic slowdown. Tight competition in some areas also deteriorated the same-store sale growth. GLOBAL’s same-store sales growth rose by 8.5% in the first quarter of 2013, but fell by 5.9% in the fourth quarter of 2013. The weakening of same-store sales was correlated with a drop in private consumption. Thailand’s private consumption rose by 4.4% year-on-year (y-o-y) during the first quarter of 2013 but fell by 4.5% y-o-y during the fourth quarter of 2013. Despite the drop in same-store sales, GLOBAL’s total sales rose by 19% in the fourth quarter of 2013, underpinned by sales volumes at the new stores. GLOBAL’s operating margin before depreciation and amortization was considered healthy at 11.3%, down slightly from 11.6% in 2012, reflecting efficient cost control and economies of scale. GLOBAL’s inventory level remained high in 2013, partly due to a delay in the completion of its new distribution center. The higher inventory level leaded to a longer cash conversion cycle and a need for more working capital in 2013.
GLOBAL’s financial profile remained satisfactory in 2013. Earnings before interest, tax, depreciation and amortization (EBITDA) climbed from Bt1,248 million in 2012 to Bt1,619 million in 2013. Despite experiencing higher leverage from store expansion and more funding required for working capital, EBITDA interest coverage ratio continued to be solid at 16.3 times in the fourth quarter of 2013. The ratio of funds from operations (FFO) to total debt remained strong at 37.9% in 2013.
GLOBAL has unveiled plans to open 10-12 stores per year during the next three years. It is building 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.
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