To ensure the success of this thematic article, I would like to express my deepest gratitude to my advisor, Ajarn Piyapas Tharavanij, for his valuable advice and precious time in support of this successful project. This thematic article showed how to value the stock price of Siam Global House Public Company (GLOBAL), applying the concept of multiple valuation models. It reflected the company's ability to survive and grow without equity or debt.
We consider using PER as it is the most appropriate market standard for valuation which PER is derived from its earnings per share. PER is the ratio that measures the future outlook of the Company in the next 12 months and is the investor's perception of the Company.
VALUATION
Highlights
- First time earning per share turning negative in 2014F
- Negative Same Store Sale growth in 2014F
- High risk of missing the target of opening new stores
Next year's target is to open a total of 12 new Global stores, most of which are planned to open in the second half of 2015. According to the historical record of the past three years, the data showed that Global could not meet its target, so we expect only 10 new stores to be opened in 2015F.
Business Description
The company's goal is to become a retail leader in the construction and home improvement segment. Therefore, the company is focusing on increasing their stores to create more accessibility and service the needs of customers. Now the company is building 7 branches in Ban-Tad (Udonthani), Lopburi, Trad, Chanthaburi, Petchaboon, Nongbualamphu and Buriram which will be opened later this year.
Macro-economic Analysis
As a result of the company's revenue growth, the CAGR of the Siam Global house is generated at 25.34%. Moreover, in the near future ACE will be fully executed, Thailand aims to be the center of ACE. The government also focuses on increasing industrial construction, so the Industrial Estate Authority of Thailand (IEAT) is planning to introduce four industrial parks by 2015. According to the above, they give investors more confidence as the government makes a decision to fast for the massive. projects and budget proposals with quick release, therefore this will help to increase all economic indicators.
This will affect all economic sectors, including the property market, logistics and transport. Thailand has some advantage from all the countries where Thailand has low cost of living, good quality of life and effective human resources, as Thailand has the potential to become the center of AEC. The direct effect of this will be an increase in demand for both commercial and industrial premises across the country.
This is because there will be many investors to either expand or establish their businesses in Thailand. Furthermore, the great increase in demand for real estate that the investors have to offer for their shelter and their workplace. The real estate companies are starting to build more houses, condominiums to support the increase in demand for residential estates for the new investors.
This may initially cause the public to worry that there may be an overabundance of housing; however, this will then be met by demand once the AEC is fully operational. As discussed, there is no doubt that the real estate market in Thailand will grow after the full operation of the AEC on 31 December 2015.
Industry Analysis
According to recent research, HomePro Global House enjoyed high sales growth of approximately 16% above the average growth rate of 3% for non-food retail sales overall. Another major support of the growth of the industrial real estate sector in Bangkok and the main provinces is that housing projects have shown significant growth over the past few years. 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 attractions, including Phuket, Chonburi, Hua Hin and Chiang Mai, also develop their land to support as many tourists as possible.
Competition Analysis
- Direct Competitor
- Summary competitor analysis
Since 2010, HMPRO has opened an average of seven new stores per year as a result of its growth strategy, compared to an average of three new stores per year in previous years. The company plans to continue opening new outlets with the next milestone of 80 stores in 2016 both in Bangkok and the country. At the end of 2013, the company had a total of 64 HomePro stores and 2 Mega Home stores across the country.
Home Works is managed by CRC Power Retail Company Limited, which is the same board of Central Retail Corporation. The company distributes construction materials, home improvement under the concept of "One stop shopping and cheap at home". Do Home has seen growth of more than 23% per year for the past five years because the operator understands local consumers and is already in good places to reach them.
The store welcomed 1 million customers in its first month alone, and the group aims to open two more stores in the capital within the next five years. As mentioned above, Global has many competitors in their home improvement industry; however, it appears that HOMEPRO has the most likelihood with Global in the nature of business operations.
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
Relatives Valuation
- Price/Earnings Ratio (PER)
- Price/Book Value Ratio (PBV)
- EV/EBITDA Measurement
Therefore, we consider PER to be the most appropriate valuation model to evaluate the company's price. Additionally, we believe that the company's sustainable expected earnings may be the appropriate benchmark to reflect the company's price. As a result, the global target price from the forward PER is 8.76 THB, compared to the current price of 12.50 THB, therefore we recommend SELL.
Financial statement analysis
- Continual store expansion to raise Revenue from Sales
- Common Size Profit &Loss: Sales Revenue
- Common size Balance sheet: Total Assets
- Common size Balance sheet: Shareholders’ Equity
- Profitability Ratios and Efficiency Ratios will maintain
- Increase Solvency Ratios and reasonable debt structure
- Liquidity Ratio
In 2011, the Company reviewed the value of its real estate and buildings in accordance with the Thai Accounting Standard (TAS 16 - Revised 2009) Property, Plant and Equipment. In addition, the annual report stated that the company also considered TAS 19, Employee benefits, TAS 21 (revised 2009) "Effects of changes in foreign exchange rates" and TFRS8 "Operating segments" were immaterial, except for TAS12 "Income taxes", whereby the change in accounting policy and related effects resulted in an increase in the company's total assets as at 31 December 2013 by 7.35 million baht. However, the company has also established a strict crediting and collection policy to minimize any risk of late payment.
The 2012 debt ratio was an increase from the previous year because the Company was in a period of store expansion that the Company required capital to invest. In 2013, the Company realized net profit from operation of 885.02 million baht and the company reserved 44.30 million baht in accordance with laws. As a result, as of December 31, 2013, the Company has allocated retained earnings of 149.08 million baht and had unappropriated retained earnings of 1,428.95.
Since 2012 Global issued new share to SCG at 30.02% now SCG is the second shareholder, so since 2012 the company has no long-term debt. But in 2014, the company issued bonds of 3 billion baht with an average interest rate of 3.85% per annum. 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 currently has a ratio of 1.38x, which means the company has no liquidity issues, compared to HMPRO's 0.64x.
Investment Risks and Downside Possibilities
- High risk of new store openings missing target
- Constraints to growth
- Home improvements reach consumers in same segments
Previous research showed that the home improvement market will grow, which results from the better economy and the future of ACE, so home improvement operators have started a plan to expand their store and diversify their business operation to support the demands of existing customers and the new target segment. For example, Home Pro, which has focused mainly on individual consumers, has planned to target the builders and contractors market by opening a new store format under a brand called Mega Home, which focuses on bricks, cement, sand and materials other basic construction. At the same time, Home Pro will also continue to add branches to further penetrate the retail consumer segment.
DATA
- Global Business Structure
- SWOT Analysis
- Strength
- Weakness
- Opportunity
- Threat
- Five-force Analysis
- Competition in the industry (Rivalry among Firms)
- 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 company in the construction and home improvement segment to provide our customers with a variety of products at an affordable price in one store under the trade name "Global House". Global has a much stronger player both operationally and financially as SCC has invested in the company. Competition in retail, building materials and home decoration products is stronger, the company has direct and indirect competitors.
A global house has to change its strategies to compete with its rival and boost sales to reach its target. Although retail sales in the construction industry are slower than before, there are still some signs that support the growth of this industry, for example, the government has many projects on sky trains, improvement and innovation of some major airports to support the growth of the tourism sector. Therefore, the number of competitors is also increasing, and the competition between existing competitors is strong.
The market opportunity for retail and building and home furnishing products has growth potential. As a result, retail and building products and home decoration will continue to grow steadily. Suppliers seem to gain some power because if the suppliers do not deliver the goods, the company will not be able to run their business.
However, since the company is the leading one-stop shopping center and they operate many branches, the bargaining power of the manufacturer or supplier seems very weak. Therefore, each operator or company tries to approach to differentiate in their products and services to reduce the bargaining power of consumers. But when the customers looking for buying it is buying building materials or home decoration, they still prefer to shop at one-stop service like Global house or HomePro.
