I would like to express my appreciation to Ajarn Vasan Siraprapasiri for making me learn and understand more in valuation for both relative valuation and discounted cash flow valuation which effectively drive me to complete my thematic paper. This thematic paper demonstrated how to value the share price of Siam Global House Public Company (GLOBAL), which applied the concept of the discounted cash flow model. As GLOBAL showed negative SSS growth in the 1st quarter of 2014 and could not achieve its target of opening a total of 12 new GLOBAL stores.
Therefore, it is necessary to carry out long-term forecasts from 2019 to 2024 in order to have a positive cash flow.
Business Description
The company is continuously expanding new branches from 13 branches at the end of the year 2011 to 27 branches at the end of the year 2013. Now the Company is building 7 branches at Ban-Tad (Udonthani), Lopburi, Trad, Chanthaburi, Petchaboon, Nongbualamphu and Buriram, which will be opened later this year.
Macro-economic Analysis
Moreover, in the near future, ACE will be fully implemented, and Thailand wants to be the center of ACE. Based on the above mentioned, they give more confidence to investors as the government is quick to take decisions on large-scale project and release budget proposals quickly, so this will help lift all economic indicators. This will affect all economic sectors, including the real estate market, logistics and transport.
The direct impact of this will be to increase the demand for both commercial and industrial spaces across the country. This is because there will be many investors to either expand or base their businesses in Thailand. In addition, the huge increase in demand for real estate that will provide investors with housing and their workplace.
The real estate companies are starting to build more houses, condominiums to support the increase in demand for residential properties for the new investors. This may make the public concerned at first, which may be an oversupply of housing; however, this will then be met by demand when the AEC is fully operational. As discussed, there is no doubt that Thailand's real estate market will grow after the full operation of the AEC on 31.
Industry Analysis
In addition, as the competition between large existing players such as HomePro and Thai Wat Sadu is high, they continue to open new stores, especially in the country, and also diversify their operations to meet local demand. According to a recent survey, HomePro Global House achieved high sales growth, approximately up to 16% above the average 3% growth rate of non-grocery retail sales overall. Another major support for the growth of the real estate industrial sector in Bangkok and the major provinces is that residential projects have shown obvious growth in recent years.
In 2014, large developers plan to continue their expansions, especially in large provinces. In addition, according to Sansiri news, the company stated that they are launching 19 new projects worth 33,263 million baht. The percentage of these projects will be a percentage of 89% for Bangkok, plus another 11% for high places. Also Land and Houses PCL plans a project to invest 43 billion Baht, 80% for Bangkok and 20% elsewhere.
In addition, the provinces outside of Bangkok, which are the place for tourist attraction, including Phuket, Chonburi, Hua Hin and Chiang Mai, are also developing their land to support the more tourists.
Competition Analysis
Direct Competitor
HMPRO offers a wide range of home-related products and services, such as home improvement products, bathroom and sanitary ware, kitchen appliances and home decorations. Since 2010, HMPRO's growth strategy has seen the company open an average of seven new stores per year, compared to an average of three new stores per year in previous years. The company plans to open more new locations, with the next milestone reaching 80 stores in 2016, both in Bangkok and domestically.
At the end of 2013, the company had a total of 64 HomePro stores and 2 Mega Home stores nationwide. Home Works is managed by CRC Power Retail Company Limited, the same board of Central Retail Corporation. The company distributes building materials and home improvements under the concept of “One-Stop Shopping and Cheap at Do Home”.
Do Home has achieved more than 23% annual growth over the past five years because the operator understands local consumers and is already in good locations to reach them.
Indirect competitor
Summary competitor analysis
Investment Summary
Joint Venture with SCC to enter ASEAN markets
Global confirms 12 new stores, but downside risk still remains Surin store was collapsed; Global has slow their expansion plan because of
Valuation
- Discounted Cash Flow Model
- Same-Store-Sales (SSS) Growth
- Gross margin
- Higher Selling and Administrative Expense (SG&A)
- Terminal Value
- CAPEX
- Weighted Average Cost of Capital
The growth investment in gross fixed assets is calculated by the percentage of the increase in the total of new stores. This was mainly due to the increase in the number of stores, employees and depreciation of the revaluation of property, plant and equipment affecting to higher S&G. The forecast nominal GDP growth from IMF is 4.8%, but the retail business growth is less than nominal GDP growth of about 10% based on the historical record.
CAPEX is a fund that a business uses to invest in or upgrade assets such as property, plant and equipment. Capital investments from the year should increase relatively with the number of stores, which invest mainly in tangible fixed assets with the aim of expanding stores. As a result, the company needed funds for investments in tangible fixed assets in the amount of approximately 3,000 MB per year.
We calculated a company's weighted average cost of capital using debt capital and equity capital. The cost of debt capital was calculated using credit spread and risk free rate which is equal to 4.79% and deducted by tax rate is 20%. The cost of equity capital was calculated using the CAPM model, with the 10-year government bond risk-free rate of 3.52%, the expected market risk premium of 7.4%, and the adjusted beta of 1.496 to give the weighted average cost of capital of 8, 45 to reflect. %.
Financial statement analysis
- Continual expansion number of store to raise Revenue from Sales
- Common Size Profit &Loss: Sales Revenue
- Costs and Expense of Sales and Administration
- Common size Balance sheet: Total Assets
- Common size Balance sheet: Total Liabilities
- Common size Balance sheet: Shareholders’ Equity
- Profitability Ratios and Efficiency Ratios will maintain
- Solvency Ratios will increase and it has reasonable debt structure
- Liquidity Ratio
In 2011, the company assessed the value of real estate and buildings, in accordance with the Thai Accounting Standard (TAS 16 - Revised 2009) for property, plant and equipment. However, the company has also implemented strict lending and cash collection policies to reduce the risk of recent payments. The debt ratio of the year 2012 was higher than the previous one because the company was in a period of store expansion for which the company needed capital to invest.
In 2013, the Company achieved a net profit from operations of 885.02 million Baht and the Company reserved 44.30 million Baht according to laws. Since 2012, Global has issued a new share to SCG as 30.02%, which is now SCG the second shareholder, so since 2012, the company has no long-term debt. But in 2014, the company has issued bonds worth 3 billion baht with an average interest rate of 3.85% annually.
The company's debt ratio is equal to 41.33% and continues to increase over time to 55.5% according to our estimate. Since the company issued new shares and bonds to expand branches, the debt-to-equity ratio is equal to 0.7 times which is a reasonable debt structure compared to the competition (HomePro has a debt-to-equity ratio equal to 1.46 times which is higher than Global ). Consider the company's liquidity ratio; Global has a current ratio of 1.38 times which means that the company does not have a liquidity problem, when compared to HMPRO with 0.64 times.
Investment Risks and Downside Possibilities
High risk of new store openings missing target
In terms of quick ratio, Global has 0.03x, which is lower than HMPRO at 0.15x. However, the commercial industry does not rely on these ratios because it always generates daily money through its operations. Chanthaburi, Trat and Phetchabun in 2Q14 and two new stores in Nong Bua Lam Phu and Buri Ram in 3Q14.
Five other stores are expected to open in late 2014F. We see a high probability that the company would not be able to meet its target of opening 12 new stores this 2014F. We are concerned that the remaining five new stores that the company plans to open at the end of 2014F, construction has yet to begin. In addition, since the store in Surin Province has failed, we believe that the company needs to allocate some of its internal resources to identify the problems and strengthen the structure of its existing buildings.
Constraints to growth
Home improvement operators now try to reach consumers in segments, as the result, they will take some market share from Global House
DATA
- Global Business Structure
- SWOT Analysis .1 Strength
- Weakness
- Opportunity
- Threat
- Five-force Analysis
- Competition in the industry (Rivalry among Existing Firms) Competition in the retail, construction materials and home decor products
- The entry of new competitors (Potential Entrants)
- Bargaining power of suppliers (Bargaining Power of Suppliers) As the company does not manufacture the product itself, they need
- Bargaining power of buyers (Bargaining Power of Buyers)
- The threat of substitute products (Threat of Substitute Product) As the construction retail industry sells products of common use, there are
- Income Statement
- Balance Sheet
- Statement of Cash Flow
- Financial Ratios
- Debenture of Global
- Weighted Average Cost of Capital
Global House is a retail business in the construction and home improvement segment to provide our customers with varieties of products at an affordable price in one store under the trade name "Global House". Global is a much stronger player both operationally and financially since SCC had invested in the company. Global house has to change their strategies to be able to compete over the competitor and drive the sales to achieve its target.
Even though the construction retail industry is slower than before, there are still signs supporting the growth of this industrial sector, such as the government having many projects on skytrain and improving and innovating some key airports to support the growth of the support the tourism sector. . That is why the number of competitors is also increasing and the competition among the existing competitor is strong. The market opportunities in retail, building products and home furnishings have growth potential.
As a result, retail, building products and home decor will continue to rise steadily. The suppliers seem to gain some power because if suppliers do not deliver the goods, the company cannot run their business. However, because the company is the leading one-stop shopping center and therefore operates many branches, the bargaining powers of the manufacturer or supplier seem very weak.
Therefore, every operator or company tries to turn around to differentiate in their products and services to reduce the bargaining power of consumers. However, when customers are looking to purchase construction materials or home decor, the y still prefer to shop at one-stop service such as Global house or HomePro.
