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Siam Global House

Bigger is better OUTPERFORM - Maintained Share Price: Bt15.40 Target price: Bt19.00

Siam Global House Plc (GLOBAL)

We see a brighter future for Global post the SCC capital injection with faster store expansion and improvements in bargaining power and efficiency, which should translate into increased earnings. We believe that the market has not yet fully priced in these synergies. We raise our EPS estimates and lift our DCF-based target price (9.3% WACC, 4% LTG) to THB19 based on increased store openings and in anticipation of improved efficiency. We believe that the market is underestimating Global's significant imminent increase in efficiency. Maintain Outperform

Accelerating expansion

We expect Global to accelerate store openings to 10-12 stores per year in 2013 following the partnership with Siam Cement Group (SCC), which will provide a cash injection of THB3bn.

Store openings will continue to be in Thailand's upcountry, where same-store-sales growth is expected to remain high due to 1) the rapid development of the region, and 2) Global's focus on low prices combined with a superior retail experience.

Efficiency improving

We expect Global's partnership with SCC to augment already-improving efficiency. We anticipate significant gains in inventory management from the distribution centre and sourcing office, both of which are due to open in 2013, as well as logistics support from SCC. We also expect gross

margins to widen significantly given Global's increasing scale, which will give it greater bargaining power, as well as efficiency gains.Still underestimated by the market Due to Global's relatively low analyst coverage, we believe that the market is still underestimating its earnings potential. Based on our fully-diluted CY13 numbers, the current share price implies 27x CY13 P/E, which is the highest in the retail sector. However, given Global's EPS growth potential, the PEG ratio is just 0.50, which is the lowest of the retail stocks under our coverage.


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