TRIS Rating affirms the company rating on Siam Global House PLC (GLOBAL) at ?A?, with a ?stable? outlook. The rating reflects GLOBAL?s market position in the home improvement retail business in Thailand as well as its satisfactory financial performance, operating efficiency, and cost control management. These strengths are weighed down by the challenges of intensifying competitive pressures, a customer base which is highly susceptible to farm income, the volatility of steel cost, and increasing uncertainty concerning post-Coronavirus Disease 2019 (COVID-19) economic recovery.
KEY RATING CONSIDERATIONS
Despite lockdown, GLOBAL?s total operating revenues remain strong
GLOBAL?s business operations were pressured by the impact of the COVID-19 lockdown during the period from July to August 2021, and some provincial flooding. However, the company?s financial performance remained strong in 2021. The company?s total operating revenues rose by 14% year-on-year (y-o-y) to THB38.7 billion. GLOBAL?s same-store sales increased by 19% y-o-y in 2021 due partly to the rise in steel prices. Increasing customer traffic following existing store renovation and improved merchandise assortments also enhanced the company?s same-store sales growth in 2021.
Based on the ongoing economic recovery nationwide, we forecast that GLOBAL?s total operating revenues will rise by 10% y-o-y in 2022, then grow by 9% per year during 2023-2024. Same-store sales should grow by 4%-6% per year during 2022-2024.
Improving operating results
GLOBAL?s gross margin widened to 25.1% in 2021, up from 23.8% in 2020. This was driven by a more favorable product mix. Sales of house brands, which carry higher margins, accounted for 24% of total sales. The rise in more high-margin products, especially steel products, accounting for about 20% of GLOBAL?s total sales, also pushed up the overall gross margin of the company.
GLOBAL?s earnings before interest, taxes, depreciation, and amortization (EBITDA) margin also widened in 2021, rising to 16.2% compared with 14% in 2020. We expect GLOBAL to maintain sound profitability during 2022-2024. Under our base-case scenario, its EBITDA margin is projected to stay at 13%-14% during 2022-2024.
Financial leverage to decline
GLOBAL?s total debt to capitalization ratio declined to 42.7% at the end of 2021, down from 45.5% at the end of 2020, owing to lower working capital needs.
GLOBAL plans to open seven to eight stores annually in 2022-2024. On that basis, capital expenditures are expected to decline to THB2.0-THB2.3 billion per annum. Following on from that, the debt to capitalization ratio is forecast to improve to 35%-41% during 2022-2024, from 43%-46% in 2020-2021. Net debt to EBITDA ratio is expected to stay at around 2.4-3 times over the next three years and the ratio of its funds from operations (FFO) to debt to stay at around 27%-34% during 2022-2024.
We assess GLOBAL to have adequate liquidity over the next 12 months. Sources of liquidity include cash on hand and unused credit facilities of around THB20 billion and expected FFO of THB4-THB5 billion per annum during 2023-2024, which should adequately cover all its debt obligations.
Long cash conversion cycle
To ensure availability of products to serve its large-scale retail format, GLOBAL carries large amounts of inventory and has a long cash cycle of around 220 days on average. However, there has been no mismatch in funding. The current ratio has been acceptable at around 1 time over the past three years with short-term bank loans providing the main source of funds to finance current assets (mainly inventory).
Leading market position in home improvement retail
GLOBAL is one of the leading modern home improvement retailers in Thailand. At the end of 2021, GLOBAL had 75 outlets throughout Thailand and one outlet in Cambodia. All its Thailand stores are located upcountry; about 30 in northeastern Thailand with the rest in other regions outside of Bangkok.
GLOBAL?s total operating revenues rose to THB34 billion in 2021 from THB27.3 billion in 2020, a 25% rise y-o-y. GLOBAL?s profitability has consistently ranked above industry average. The EBITDA margin has been in the 13%-16% range for the last five years, higher than the 11% average of other major players.
International expansion
GLOBAL had expanded its business into neighboring countries, covering the Lao People?s Democratic Republic (Lao PDR), Cambodia, and Myanmar during 2015-2020. International investment should support the company?s strategic expansion of retail business in the Association of South East Asian Nations (ASEAN). In November 2021, Global House International Co., Ltd. (GBI), a joint venture between GLOBAL and SCG Distribution Co., Ltd. (SCGD), announced its investment in a 22% stake in Caturkarda Depo Bangunan Tbk (CKDB), a leading Indonesian retailer of building material, decorative, and hardware products under the brand ?Depo Bangunan?. The total investments of GBI are THB847 million. In addition, GLOBAL established the subsidiary, Guangxi Global House Co., Ltd., to support the company?s product procurement from China to Thailand and neighboring countries.
BASE-CASE ASSUMPTIONS
? Total operating revenues to rise by 10% in 2022, then to grow by 9% in 2023-2024.
? EBITDA margin to stay around 13%-14% in 2022-2024.
? Total capital spending and investment to be in the range of THB2.0-THB2.3 billion per annum during 2022-2024.
RATING OUTLOOK
The ?stable? outlook reflects our expectation that GLOBAL will maintain its market position in the home improvement retailing industry. The company is expected to sustain profitability while growing its business.
RATING SENSITIVITIES
GLOBAL?s rating and/or outlook could be revised upward if it demonstrates the ability to improve efficiency by shortening its cash conversion cycle and significantly enlarging cash generation on a sustainable basis. This is in addition to maintaining sound profitability and cash flow protection. In contrast, a rating downgrade could occur if GLOBAL?s operating performance declines dramatically or leverage rises considerably, leading to materially weakened debt serviceability for an extended period.
COMPANY OVERVIEW
GLOBAL is one of the leading warehouse-style home improvement retailers in Thailand. It was established in 1997 by
Mr. Witoon Suriyawanakul and listed on the Stock Exchange of Thailand (SET) in 2009. In November 2012, SCGD, 100% owned by Siam Cement Group PLC (SCG), became a strategic partner of GLOBAL. As of December 2021, GLOBAL?s major shareholders were the Suriyawanakul family (36%) and SCGD (32%).
As of December 2021, the company operated 75 stores in Thailand and one store in Cambodia, with a total store area of 1,465,686 square meters (sq.m.).
RELATED CRITERIA
- Key Financial Ratio and Adjustments for Corporate Issuers, 11 January 2022
- Rating Methodology ? Corporate, 26 July 2019
Siam Global House PLC (GLOBAL)
Company Rating: A
Rating Outlook: Stable