Siam Global House
Siam Global House
Buy (17E TP Bt15.30)
Company update
Close Bt13.30
Commerce August 15, 2017
Earnings upgrade/Earnings downgrade/Overview unchanged
2Q17 profit dragged down by slowing economy Price Performance (%)
Source: SET Smart
FY17
FY18
Consensus EPS (Bt)
0.442
0.532
KT ZMICO vs. consensus Share data
‐2.7%
1.5%
Reuters / Bloomberg
GLOBAL.BK/GLOBAL TB
Paid‐up Shares (m)
3,841.41
Par (Bt)
1.00
Market cap (Bt bn / US$ m)
51.00/1,536.00
Foreign limit / actual (%)
49.00/1.18
52 week High / Low (Bt)
17.91/11.81
Avg. daily T/O (shares 000) NVDR (%)
6,526.00 3.13
Estimated free float (%)
31.98
Beta
0.94
URL
www.globalhouse.co.th
CGR
Anti‐corruption
Level 2 (Declared)
Pornsawat Jirajarus Analyst no. 18228 [email protected] 66 (0) 2624‐6257
New stores not helping much yet The slowing economy and rising SG&A expenses from expansion should continue to hinder GLOBAL’s profit this year. However, in the long term, this expansion should drive up the performance considerably once the economy regains pace. We remain positive to GLOBAL’s improving profit margin and its dominance in the home improvement market in the provinces. We revise down the profit forecast/TP in 17E but view that with GLOBAL’s continuous expansion, the stock price at PE/EPS growth of 1.0x‐1.2x in 17E‐18E looks attractive. We maintain our Buy call. 2Q17 net profit declined 6% YoY GLOBAL reported 2Q17 net profit of Bt432mn, down 6% YoY and 11% QoQ. The YoY decline in net profit resulted from 1) the slowing economy that caused same‐store‐sales growth to decline further to ‐9.8% YoY (vs. ‐7% YoY in 1Q17) and 2) a 28% (or Bt155mn) rise in SG&A expenses (ratio to sales up 204 bps YoY to 13.1%, which should have resulted from acceleration of new stores during the past 3‐4 quarters). Sales rose 8% YoY to Bt5.17bn, driven mainly by eleven new stores opening during 3Q16‐ 2Q17 (five new stores in 1H17, namely Ang‐Thong, Prachuap Kiri Khan, Uttaradit, Loei and Chumpae), raising the number of total stores to 51 at the end of 2Q17. The gross margin increased 45 bps YoY (to 21.2% from higher sales of house brand products), but the impact from rising SG&A expenses caused the EBITDA margin to decline 79 bps YoY to 14.2%. Note that GLOBAL’s changing accounting policy for property, plants and equipment from a revaluation basis to a cost basis starting this year caused depreciation to decline, resulting in a net profit increase in both 2016 and 2017 by approximately Bt45‐46mn per quarter compared to the previous method. Slowing sales likely to continue in 2H17 Rising SG&A expenses from new store rollouts seems to be hindering GLOBAL’s profitability in the short term, but this should help drive up sales once the economy regains pace. We expect that GLOBAL will open three more new stores in 2H17, raising the number of new stores to eight this year, and helping to soften the impact from the slowing economy. However, the impact from floods in northern and northeastern provinces and weak farm income should continue to cause negative same‐store‐ sales growth in the high single digits in 2H17. This causes us to revise down the net profit forecasts in 17E‐18E by around 20% and lower the DCF TP in 17E from Bt19.43 to Bt15.30 (WACC 8.5%, terminal growth 3%). Financials and Valuation FY Ended 31 Dec Revenues (Btmn) Net profit (Btmn) EPS (Bt) EPS growth (%) Dividend (Bt) BV (Bt) FY Ended 31 Dec PER (x) EV/EBITDA (x) P/BV (x) Dividend yield (%) ROE (%) Net gearing (%)
2015 16,864 881 0.25 9.9% 0.18 4.28
2016 18,857 1,495 0.41 61.7% 0.29 4.44
2017E 20,180 1,643 0.43 4.7% 0.30 3.63
2018E 23,541 2,056 0.54 25.1% 0.37 4.10
2019E 26,336 2,517 0.66 22.4% 0.46 4.68
2015 45.53 19.17 2.35 1.35 5.0% 25.3%
2016 43.07 25.45 3.96 1.63 9.4% 47.1%
2017E 31.10 19.47 3.66 2.25 12.2% 45.3%
2018E 24.85 15.03 3.24 2.82 13.8% 33.2%
2019E 20.30 12.85 2.84 3.45 14.9% 22.7%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 5
Figure 1: Earnings results review Profit and Loss (Btmn) FY Ended 31 Dec Revenue Gross profit EBITDA Interest expense Other income Income tax Forex gain (loss) Other extraordinary Items Gn (Ls) from affiliates Net profit (loss) Core net profit (loss) Reported EPS (THB) Gross margin (%) EBITDA margin (%) Net margin (%) Current ratio (x) Interest coverage (x) Debt / equity (x) BVPS (Bt) ROE (%)
2Q16 4,787 993 740 (39) 161 (111) 0 (5) 7 462 467 0.13 20.7 15.0 9.3 1.2 19.0 0.8 3.3 11.0
3Q16 4,362 901 555 (44) 131 (70) 0 0 (5) 284 284 0.08 20.7 12.3 6.3 1.1 12.6 0.9 3.4 12.2
4Q16 4,554 975 517 (49) 151 (59) 0 0 1 251 251 0.07 21.4 11.0 5.3 1.1 10.5 0.9 3.5 12.3
1Q17 5,377 1,132 818 (48) 176 (119) 0 0 1 484 491 0.13 21.0 14.7 8.7 1.1 16.9 0.9 3.7 11.6
2Q17 % YoY % QoQ 5,174 8.1 (3.8) 1,096 10.4 (3.1) 759 2.5 (7.2) (39) 1.2 (18.5) 183 13.5 4.4 (106) (4.6) (10.4) 0 n.m. n.m. 0 n.m. n.m. 2 n.m. n.m. 432 (6.4) (10.7) 432 (7.4) (12.0) 0.12 (6.4) (10.7) 21.2 14.2 8.1 1.2 19.3 0.9 3.6 11.1
1H16 9,941 2,001 1,529 (76) 334 (235) 0 (17) 10 960 977 0.27 20.1 14.9 9.3 1.2 20.1 0.8 3.3 11.0
1H17 % YoY 10,551 6.1 2,228 11.4 1,576 3.1 (88) 15.5 359 7.3 (225) (4.3) 0 n.m. 0 n.m. 3 (73.9) 916 (4.6) 923 (5.5) 0.25 (7.0) 21.1 14.4 8.4 1.2 18.0 0.9 3.6 11.1
2016 18,857 3,877 2,600 (169) 617 (364) 0 0 0 1,495 1,495 0.41 20.6 13.4 7.7 1.1 15.4 0.9 3.4 11.0
2017E % YoY % YTD 20,180 7.0 52.3 4,258 9.8 52.3 2,948 13.4 53.5 (173) 2.1 50.8 676 9.6 53.1 (401) 10.0 56.1 0 n.m. n.m. 0 n.m. n.m. 0 n.m. n.m. 1,643 9.9 55.8 1,643 9.9 56.2 0.43 4.7 58.6 21.1 14.1 7.9 2.3 17.1 0.7 3.6 12.5
Note: Figures in 3Q16‐4Q16 and 2016 remain unchanged and will later gradually be adjusted quarter by quarter during 3Q16‐4Q16 following the new accounting policy.
Source: GLOBAL, KT ZMICO Research
Figure 2: Sales growth
Figure 3: Earnings trend
Same‐store sales growth
Sales growth
Core net profit
600
50%
Core net profit growth
200%
500
150%
40% 400
100%
30% 300
20%
0%
100
1Q17
1Q16
1Q15
1Q14
1Q13
‐20%
‐50%
‐ 1Q12
1Q17
1Q16
1Q15
1Q14
1Q13
1Q12
0% ‐10%
50%
200
10%
Source: Company data, KT ZMICO estimates REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 5
Figure 4: Profitability trends Gross Profit Margin
25.0%
Figure 5: Store expansion Stores
EBITDA Margin
Number of stpres
80
Net Profit Margin
New stores
20.0% 60
59
54 46
15.0% 40 27
10.0%
2011
5
6
8
8
5
2018F
2010
7
2017F
2009
7
2016
2
2015
3
2014
1
2013
13
11
8
2012
20
20
5.0%
38
32
0
1Q17
1Q16
1Q15
1Q14
1Q13
1Q12
0.0%
Source: Company data, KT ZMICO estimates Figure 6: Forecast revisions
Revenue %change Gross margin EBITDA %change EBITDA margin Net profit %change Normalized profit %change Net margin Same‐store sales % change New stores % change
2016 18,857 0.2% 20.6% 2,600 ‐6.6% 13.4% 1,495 2.1% 1,495 2.1% 7.7%
New 2017E 20,180 ‐13.4% 21.1% 2,948 ‐15.8% 14.1% 1,643 ‐21.4% 1,643 ‐21.4% 7.9%
Figure 7: DCF valuation 2018E 23,541 ‐12.1% 21.2% 3,547 ‐13.9% 14.6% 2,056 ‐21.0% 2,056 ‐21.0% 8.5%
2017E 23,308
Old 2018E 26,777
20.8% 3,501
21.0% 4,118
14.5% 2,091
14.9% 2,604
2,091
2,604
8.7%
9.4%
2017F
2018F
2019F
2020F
2021F
NOPAT 1,808 2,234 2,671 3,050 3,627 Depreciation 740 809 877 946 1,014 Net investment in working cap 869 - 327 - 708 - 611 - 1,076 Net investment in fixed assets - 1,800 - 1,125 - 1,148 - 1,148 - 1,148 Free cash flow to firm (FCFF) 1,617 1,590 1,693 2,237 2,417 NPV of FCFFadjusted period NPV of Terminal value less:net interest bearing debt Equity value No. of shares (mn) Value per share (Bt)
18,867 46,185 - 6,315 58,737 3,841 15.29
Market risk premium Beta Terminal growth rate Cost of equity Targeted D/E WACC
0.0% ‐8.0% 1.0% 2.0% 2.0% 0.0% ‐10.0% ‐1.0% 8 8 5 8 5 ‐ ‐ ‐
Source: KT ZMICO estimates
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 5
9.5% 0.70 3.00% 11.7% 0.54 8.5%
FINANCIAL TABLE PROFIT & LOSS (Btmn) Revenues Cost of sales and service Gross profit SG&A EBITDA Depreciation & amortization EBIT Interest expense Other income / exp. EBT Corporate tax Extra Items Gain (loss) from affiliates Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt) BALANCE SHEET (Btmn) Cash and equivalents Accounts receivable Inventories PP&E‐net Other assets Total assets ST debt & current portion Long‐term debt Total liabilities Paid‐up shares Shareholder equity Total liab. & shareholder equity
2014 15,561 (13,205) 2,356 (1,844) 1,693 683 1,010 (133) 498 877 (176) 0 0 701 0.23 0.23 697 0.23 0.02
2015 16,864 (14,045) 2,819 (2,114) 1,973 721 1,252 (144) 547 1,099 (219) 0 0 881 0.25 0.25 875 0.25 0.05
2016 18,857 (14,980) 3,877 (2,471) 2,600 578 2,022 (169) 617 1,859 (364) 0 0 1,495 0.41 0.41 1,495 0.41 0.06
2017E 20,180 (15,922) 4,258 (2,726) 2,948 740 2,208 (173) 676 2,044 (401) 0 0 1,643 0.43 0.43 1,643 0.43 0.06
2018E 23,541 (18,541) 5,000 (3,039) 3,547 809 2,738 (187) 777 2,561 (504) 0 0 2,056 0.54 0.54 2,056 0.54 0.08
2019E 26,336 (20,690) 5,646 (3,268) 4,178 877 3,300 (165) 922 3,147 (629) 0 0 2,517 0.66 0.66 2,517 0.66 0.10
2014 283 19 7,041 13,160 96 21,174 1,219 3,000 7,091 3,049 14,083 21,174
2015 297 19 7,579 13,677 561 23,037 1,724 3,000 8,119 3,484 14,918 23,037
2016 169 1,051 10,250 10,848 656 23,067 4,819 3,000 10,722 3,658 12,346 23,067
2017E 685 971 9,597 11,907 789 24,053 2,000 5,000 10,106 3,841 13,947 24,053
2018E 1,272 1,133 10,160 12,224 931 25,833 1,000 5,500 10,076 3,841 15,757 25,833
2019E 1,119 1,270 11,054 12,494 1,084 27,145 1,200 4,000 9,179 3,841 17,966 27,145
CASH FLOW (Btmn) 2014 2015 2016 2017E 2018E 2019E 2,517 Net income 701 881 1,495 1,643 2,056 0 0 0 0 0 1 Forex and other extraordinary adjustments Depreciation & amortization 683 721 578 740 809 877 Change in working capital 211 (528) (3,596) 863 (336) (722) Cash flow from operations 1,595 1,073 (1,524) 3,246 2,528 2,673 Capex (Invest)/Divest (1,423) (1,284) (2,400) (1,870) (1,195) (1,218) Cash flow from investing (1,423) (1,284) (2,400) (1,870) (1,195) (1,218) Debt financing (repayment) 752 305 3,296 (819) (500) (1,300) Equity financing 436 436 174 183 0 0 Dividend payment (48) (48) (159) (224) (246) (308) Others (839) (436) (174) 0 0 0 Cash flow from financing 301 256 3,137 (861) (746) (1,608) Net change in cash 473 46 (786) 516 587 (153) Free cash flow 1,595 1,073 (1,524) 3,246 2,528 2,673 FCF per share (Bt) 5.23 3.08 (4.16) 8.45 6.58 6.96 PROFITABILITY Revenue growth (%) EBITDA growth (%) EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%)
2014 2015 2016 2017E 2018E 2019E 8.8 8.4 11.8 7.0 16.7 11.9 4.6 16.5 31.8 13.4 20.3 17.8 (36.2) 9.9 61.7 4.7 25.1 22.4 15.1 16.7 20.6 21.1 21.2 21.4 10.5 11.3 13.4 14.1 14.6 15.3 6.3 7.2 10.4 10.6 11.3 12.1 4.4 5.1 7.7 7.9 8.5 9.2 4.3 5.0 7.7 7.9 8.5 9.2 20.0 19.9 19.6 19.6 19.7 20.0
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 5
Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore, prior to making investments in the securities of KTB and ZMICO, investors should consider the risk factors carefully. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG. A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, M‐CHAI, POMPUI, TTL, NMG, SAWAD.
Corporate Governance Report (CGR) Source: Sec, Thai Institute of Directors Association (IOD) Excellent (scores: 90 ‐ 100) Very Good (scores: 80 – 89) Good (scores: 70 – 79)
Satisfactory (scores: 60 – 69) Pass (scores: 50 – 59) No Logo N/A (scores: below 50)
Anti‐corruption Progress Indicator Source: Sec, Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC)
Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.) Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases Insufficient or not clearly defined policy Data not available / no policy
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS
SECTOR RECOMMENDATIONS
BUY: Expecting positive total returns of 15% or more OVERWEIGHT: The industry, as defined by the analyst's over the next 12 months coverage universe, is expected to outperform the relevant OUTPERFORM: Expecting total returns between ‐10% primary market index by at least 10% over the next 12 months. to +15%; returns expected to exceed market returns NEUTRAL: The industry, as defined by the analyst's coverage over a six‐month period due to specific catalysts universe, is expected to perform in line with the relevant UNDERPERFORM: Expecting total returns between primary market index over the next 12 months. ‐10% to +15%; returns expected to be below market returns over a six‐month period due to specific UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant catalysts SELL: Expecting negative total returns of 10% or more primary market index by 10% over the next 12 months. over the next 12 months
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 5
KT ZMICO Securities Company Limited Head Office
WWW.KTZMICO.COM
8th, 15th‐17th,19th, 21st Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok, Thailand 10500 Telephone: (66‐2) 695‐5000 Fax: (66‐2) 695‐5173 KT ZMICO Connect 662 695 5555
Central World Branch
Amarin Branch
22nd Floor, Amarin Building, 496‐502 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 018‐6200 Fax: (66‐2) 018‐6298, (66‐2) 018‐6299
8th Floor, Ton Son Tower, 900 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 626‐6000 Fax: (66‐2) 626‐6111
Phaholyothin Branch
Sindhorn Branch
Viphavadee Branch
2nd Floor, Sindhorn Tower 1, 130‐132 Wireless Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 627‐3550 Fax: (66‐2) 627‐3582, 627‐3600
G Floor, Lao Peng Nguan 1 Bldg., 333 Soi Cheypuand, Viphavadee‐Rangsit Road, Ladyao, Jatujak, Bangkok 10900 Telephone: (66‐2) 013‐8600 Fax: (66‐2) 618‐8569
BangKhae Branch
Chiang Mai Branch
Pak Chong Branch
999/9 The Offices at Central World, 16th Fl., Rama 1 Rd, Pathumwan, Bangkok 10330 Telephone: (66‐2) 264‐5888 Fax: (66‐2) 264 5899
1291/1, Shinnawatra Tower II, 3rd Floor, Phaholyothin Road, Phayathai, Bangkok 10400 Telephone: (66‐2) 686‐1500 Fax: (66‐2) 686‐1666
Ploenchit Branch
518 The Mall Group Building Bangkhae Branch, 6th Floor, Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Telephone: (66‐2) 454‐9979 Fax: (66‐2) 454‐9970
422/49 Changklan Road, Changklan Subdistrict, Amphoe Meuang, Chiang Mai 50100 Telephone: (053) 270‐072 Fax: (053) 272‐618
173 175, Mittapap Road, Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Telephone: (044) 279‐511 Fax: (044) 279‐574
Korat Branch
Khon Kaen Branch
Chonburi Branch
624/9 Changphuek Road, T.Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171
5th Floor, Charoen Thani Princess Hotel, 260 Srichan Road, T. Naimuang, A. Muang, Khon Kaen 40000 Telephone: (043) 389‐171‐193 Fax: (043) 389‐209
4th Floor, Forum Plaza Bldg., 870/52 Sukhumvit Road, T. Bangplasoy, A. Muang, Cholburi 20000 Telephone: (038) 287‐635 Fax: (038) 287‐637
Pattaya Branch
Chachoengsao Branch
Hat Yai Branch
Easy Point 2, 392/65 Moo.9, T.Nong Prue, A. Bang Lamung, Chonburi 20260 Telephone: (038) 420‐965 Fax: (038) 420‐968
108/34‐36 Mahajakkrapad Road, T.Namuang, A.Muang, Chachoengsao 24000 Telephone: (038) 813‐088 Fax: (038) 813‐099
200/301, 200/303 JULDIS HATYAI PLAZA Floor 3 , Niphat‐Uthit 3 Rd, Hatyai Songkhla 90110 Telephone: (074) 355530‐3 Fax: (074) 355534
Phuket Branch
22/61‐63, Luang Por Wat Chalong Road, Talat Yai, Mueang Phuket, Phuket 83000 Telephone: (076) 222‐811, (076) 222‐683 Fax: (076) 222‐861
Phitsanulok Branch
227/171 Borom Trilokkanat Road, Muang, Phitsanulok 65000 Telephone: 055‐219‐255 to 8 Fax: 055‐219‐259
Nakhon Pathom
Cyber Branch Ayutthaya
Cyber Branch @ North Nana
Cyber Branch Chiangrai
KrungThai Bank, Rojana Branch 253 Moo 5, Rojana Road, Phai Ling, Phra Nakhon Si Ayutthaya, Phra Nakhonsi Ayutthaya, 13000 Telephone: 035‐242‐477 Fax: 035‐242‐476
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd., Klong Toey Nua Subdistrict , Wattana District , Bangkok 10110 Telephone: 083‐490‐2871
River Hotel (Building 3rd),1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
KrungThai Bank, Hayaek Phokhun Mengrai Branch 116/19 Moo 19, Highway 110 Road, Rop Wiang, Mueang Chiang Rai, Chiang Rai, 57000 Telephone: 053‐715‐067 Fax: 053‐715‐068
Buy (17E TP Bt15.30)
Company update
Close Bt13.30
Commerce August 15, 2017
Earnings upgrade/Earnings downgrade/Overview unchanged
2Q17 profit dragged down by slowing economy Price Performance (%)
Source: SET Smart
FY17
FY18
Consensus EPS (Bt)
0.442
0.532
KT ZMICO vs. consensus Share data
‐2.7%
1.5%
Reuters / Bloomberg
GLOBAL.BK/GLOBAL TB
Paid‐up Shares (m)
3,841.41
Par (Bt)
1.00
Market cap (Bt bn / US$ m)
51.00/1,536.00
Foreign limit / actual (%)
49.00/1.18
52 week High / Low (Bt)
17.91/11.81
Avg. daily T/O (shares 000) NVDR (%)
6,526.00 3.13
Estimated free float (%)
31.98
Beta
0.94
URL
www.globalhouse.co.th
CGR
Anti‐corruption
Level 2 (Declared)
Pornsawat Jirajarus Analyst no. 18228 [email protected] 66 (0) 2624‐6257
New stores not helping much yet The slowing economy and rising SG&A expenses from expansion should continue to hinder GLOBAL’s profit this year. However, in the long term, this expansion should drive up the performance considerably once the economy regains pace. We remain positive to GLOBAL’s improving profit margin and its dominance in the home improvement market in the provinces. We revise down the profit forecast/TP in 17E but view that with GLOBAL’s continuous expansion, the stock price at PE/EPS growth of 1.0x‐1.2x in 17E‐18E looks attractive. We maintain our Buy call. 2Q17 net profit declined 6% YoY GLOBAL reported 2Q17 net profit of Bt432mn, down 6% YoY and 11% QoQ. The YoY decline in net profit resulted from 1) the slowing economy that caused same‐store‐sales growth to decline further to ‐9.8% YoY (vs. ‐7% YoY in 1Q17) and 2) a 28% (or Bt155mn) rise in SG&A expenses (ratio to sales up 204 bps YoY to 13.1%, which should have resulted from acceleration of new stores during the past 3‐4 quarters). Sales rose 8% YoY to Bt5.17bn, driven mainly by eleven new stores opening during 3Q16‐ 2Q17 (five new stores in 1H17, namely Ang‐Thong, Prachuap Kiri Khan, Uttaradit, Loei and Chumpae), raising the number of total stores to 51 at the end of 2Q17. The gross margin increased 45 bps YoY (to 21.2% from higher sales of house brand products), but the impact from rising SG&A expenses caused the EBITDA margin to decline 79 bps YoY to 14.2%. Note that GLOBAL’s changing accounting policy for property, plants and equipment from a revaluation basis to a cost basis starting this year caused depreciation to decline, resulting in a net profit increase in both 2016 and 2017 by approximately Bt45‐46mn per quarter compared to the previous method. Slowing sales likely to continue in 2H17 Rising SG&A expenses from new store rollouts seems to be hindering GLOBAL’s profitability in the short term, but this should help drive up sales once the economy regains pace. We expect that GLOBAL will open three more new stores in 2H17, raising the number of new stores to eight this year, and helping to soften the impact from the slowing economy. However, the impact from floods in northern and northeastern provinces and weak farm income should continue to cause negative same‐store‐ sales growth in the high single digits in 2H17. This causes us to revise down the net profit forecasts in 17E‐18E by around 20% and lower the DCF TP in 17E from Bt19.43 to Bt15.30 (WACC 8.5%, terminal growth 3%). Financials and Valuation FY Ended 31 Dec Revenues (Btmn) Net profit (Btmn) EPS (Bt) EPS growth (%) Dividend (Bt) BV (Bt) FY Ended 31 Dec PER (x) EV/EBITDA (x) P/BV (x) Dividend yield (%) ROE (%) Net gearing (%)
2015 16,864 881 0.25 9.9% 0.18 4.28
2016 18,857 1,495 0.41 61.7% 0.29 4.44
2017E 20,180 1,643 0.43 4.7% 0.30 3.63
2018E 23,541 2,056 0.54 25.1% 0.37 4.10
2019E 26,336 2,517 0.66 22.4% 0.46 4.68
2015 45.53 19.17 2.35 1.35 5.0% 25.3%
2016 43.07 25.45 3.96 1.63 9.4% 47.1%
2017E 31.10 19.47 3.66 2.25 12.2% 45.3%
2018E 24.85 15.03 3.24 2.82 13.8% 33.2%
2019E 20.30 12.85 2.84 3.45 14.9% 22.7%
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 5
Figure 1: Earnings results review Profit and Loss (Btmn) FY Ended 31 Dec Revenue Gross profit EBITDA Interest expense Other income Income tax Forex gain (loss) Other extraordinary Items Gn (Ls) from affiliates Net profit (loss) Core net profit (loss) Reported EPS (THB) Gross margin (%) EBITDA margin (%) Net margin (%) Current ratio (x) Interest coverage (x) Debt / equity (x) BVPS (Bt) ROE (%)
2Q16 4,787 993 740 (39) 161 (111) 0 (5) 7 462 467 0.13 20.7 15.0 9.3 1.2 19.0 0.8 3.3 11.0
3Q16 4,362 901 555 (44) 131 (70) 0 0 (5) 284 284 0.08 20.7 12.3 6.3 1.1 12.6 0.9 3.4 12.2
4Q16 4,554 975 517 (49) 151 (59) 0 0 1 251 251 0.07 21.4 11.0 5.3 1.1 10.5 0.9 3.5 12.3
1Q17 5,377 1,132 818 (48) 176 (119) 0 0 1 484 491 0.13 21.0 14.7 8.7 1.1 16.9 0.9 3.7 11.6
2Q17 % YoY % QoQ 5,174 8.1 (3.8) 1,096 10.4 (3.1) 759 2.5 (7.2) (39) 1.2 (18.5) 183 13.5 4.4 (106) (4.6) (10.4) 0 n.m. n.m. 0 n.m. n.m. 2 n.m. n.m. 432 (6.4) (10.7) 432 (7.4) (12.0) 0.12 (6.4) (10.7) 21.2 14.2 8.1 1.2 19.3 0.9 3.6 11.1
1H16 9,941 2,001 1,529 (76) 334 (235) 0 (17) 10 960 977 0.27 20.1 14.9 9.3 1.2 20.1 0.8 3.3 11.0
1H17 % YoY 10,551 6.1 2,228 11.4 1,576 3.1 (88) 15.5 359 7.3 (225) (4.3) 0 n.m. 0 n.m. 3 (73.9) 916 (4.6) 923 (5.5) 0.25 (7.0) 21.1 14.4 8.4 1.2 18.0 0.9 3.6 11.1
2016 18,857 3,877 2,600 (169) 617 (364) 0 0 0 1,495 1,495 0.41 20.6 13.4 7.7 1.1 15.4 0.9 3.4 11.0
2017E % YoY % YTD 20,180 7.0 52.3 4,258 9.8 52.3 2,948 13.4 53.5 (173) 2.1 50.8 676 9.6 53.1 (401) 10.0 56.1 0 n.m. n.m. 0 n.m. n.m. 0 n.m. n.m. 1,643 9.9 55.8 1,643 9.9 56.2 0.43 4.7 58.6 21.1 14.1 7.9 2.3 17.1 0.7 3.6 12.5
Note: Figures in 3Q16‐4Q16 and 2016 remain unchanged and will later gradually be adjusted quarter by quarter during 3Q16‐4Q16 following the new accounting policy.
Source: GLOBAL, KT ZMICO Research
Figure 2: Sales growth
Figure 3: Earnings trend
Same‐store sales growth
Sales growth
Core net profit
600
50%
Core net profit growth
200%
500
150%
40% 400
100%
30% 300
20%
0%
100
1Q17
1Q16
1Q15
1Q14
1Q13
‐20%
‐50%
‐ 1Q12
1Q17
1Q16
1Q15
1Q14
1Q13
1Q12
0% ‐10%
50%
200
10%
Source: Company data, KT ZMICO estimates REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 5
Figure 4: Profitability trends Gross Profit Margin
25.0%
Figure 5: Store expansion Stores
EBITDA Margin
Number of stpres
80
Net Profit Margin
New stores
20.0% 60
59
54 46
15.0% 40 27
10.0%
2011
5
6
8
8
5
2018F
2010
7
2017F
2009
7
2016
2
2015
3
2014
1
2013
13
11
8
2012
20
20
5.0%
38
32
0
1Q17
1Q16
1Q15
1Q14
1Q13
1Q12
0.0%
Source: Company data, KT ZMICO estimates Figure 6: Forecast revisions
Revenue %change Gross margin EBITDA %change EBITDA margin Net profit %change Normalized profit %change Net margin Same‐store sales % change New stores % change
2016 18,857 0.2% 20.6% 2,600 ‐6.6% 13.4% 1,495 2.1% 1,495 2.1% 7.7%
New 2017E 20,180 ‐13.4% 21.1% 2,948 ‐15.8% 14.1% 1,643 ‐21.4% 1,643 ‐21.4% 7.9%
Figure 7: DCF valuation 2018E 23,541 ‐12.1% 21.2% 3,547 ‐13.9% 14.6% 2,056 ‐21.0% 2,056 ‐21.0% 8.5%
2017E 23,308
Old 2018E 26,777
20.8% 3,501
21.0% 4,118
14.5% 2,091
14.9% 2,604
2,091
2,604
8.7%
9.4%
2017F
2018F
2019F
2020F
2021F
NOPAT 1,808 2,234 2,671 3,050 3,627 Depreciation 740 809 877 946 1,014 Net investment in working cap 869 - 327 - 708 - 611 - 1,076 Net investment in fixed assets - 1,800 - 1,125 - 1,148 - 1,148 - 1,148 Free cash flow to firm (FCFF) 1,617 1,590 1,693 2,237 2,417 NPV of FCFFadjusted period NPV of Terminal value less:net interest bearing debt Equity value No. of shares (mn) Value per share (Bt)
18,867 46,185 - 6,315 58,737 3,841 15.29
Market risk premium Beta Terminal growth rate Cost of equity Targeted D/E WACC
0.0% ‐8.0% 1.0% 2.0% 2.0% 0.0% ‐10.0% ‐1.0% 8 8 5 8 5 ‐ ‐ ‐
Source: KT ZMICO estimates
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 5
9.5% 0.70 3.00% 11.7% 0.54 8.5%
FINANCIAL TABLE PROFIT & LOSS (Btmn) Revenues Cost of sales and service Gross profit SG&A EBITDA Depreciation & amortization EBIT Interest expense Other income / exp. EBT Corporate tax Extra Items Gain (loss) from affiliates Net profit Reported EPS Fully diluted EPS Core net profit Core EPS Dividend (Bt) BALANCE SHEET (Btmn) Cash and equivalents Accounts receivable Inventories PP&E‐net Other assets Total assets ST debt & current portion Long‐term debt Total liabilities Paid‐up shares Shareholder equity Total liab. & shareholder equity
2014 15,561 (13,205) 2,356 (1,844) 1,693 683 1,010 (133) 498 877 (176) 0 0 701 0.23 0.23 697 0.23 0.02
2015 16,864 (14,045) 2,819 (2,114) 1,973 721 1,252 (144) 547 1,099 (219) 0 0 881 0.25 0.25 875 0.25 0.05
2016 18,857 (14,980) 3,877 (2,471) 2,600 578 2,022 (169) 617 1,859 (364) 0 0 1,495 0.41 0.41 1,495 0.41 0.06
2017E 20,180 (15,922) 4,258 (2,726) 2,948 740 2,208 (173) 676 2,044 (401) 0 0 1,643 0.43 0.43 1,643 0.43 0.06
2018E 23,541 (18,541) 5,000 (3,039) 3,547 809 2,738 (187) 777 2,561 (504) 0 0 2,056 0.54 0.54 2,056 0.54 0.08
2019E 26,336 (20,690) 5,646 (3,268) 4,178 877 3,300 (165) 922 3,147 (629) 0 0 2,517 0.66 0.66 2,517 0.66 0.10
2014 283 19 7,041 13,160 96 21,174 1,219 3,000 7,091 3,049 14,083 21,174
2015 297 19 7,579 13,677 561 23,037 1,724 3,000 8,119 3,484 14,918 23,037
2016 169 1,051 10,250 10,848 656 23,067 4,819 3,000 10,722 3,658 12,346 23,067
2017E 685 971 9,597 11,907 789 24,053 2,000 5,000 10,106 3,841 13,947 24,053
2018E 1,272 1,133 10,160 12,224 931 25,833 1,000 5,500 10,076 3,841 15,757 25,833
2019E 1,119 1,270 11,054 12,494 1,084 27,145 1,200 4,000 9,179 3,841 17,966 27,145
CASH FLOW (Btmn) 2014 2015 2016 2017E 2018E 2019E 2,517 Net income 701 881 1,495 1,643 2,056 0 0 0 0 0 1 Forex and other extraordinary adjustments Depreciation & amortization 683 721 578 740 809 877 Change in working capital 211 (528) (3,596) 863 (336) (722) Cash flow from operations 1,595 1,073 (1,524) 3,246 2,528 2,673 Capex (Invest)/Divest (1,423) (1,284) (2,400) (1,870) (1,195) (1,218) Cash flow from investing (1,423) (1,284) (2,400) (1,870) (1,195) (1,218) Debt financing (repayment) 752 305 3,296 (819) (500) (1,300) Equity financing 436 436 174 183 0 0 Dividend payment (48) (48) (159) (224) (246) (308) Others (839) (436) (174) 0 0 0 Cash flow from financing 301 256 3,137 (861) (746) (1,608) Net change in cash 473 46 (786) 516 587 (153) Free cash flow 1,595 1,073 (1,524) 3,246 2,528 2,673 FCF per share (Bt) 5.23 3.08 (4.16) 8.45 6.58 6.96 PROFITABILITY Revenue growth (%) EBITDA growth (%) EPS growth (%) Gross margin (%) EBITDA margin (%) Operating margin (%) Net margin (%) Core profit margin (%) Effective tax rate (%)
2014 2015 2016 2017E 2018E 2019E 8.8 8.4 11.8 7.0 16.7 11.9 4.6 16.5 31.8 13.4 20.3 17.8 (36.2) 9.9 61.7 4.7 25.1 22.4 15.1 16.7 20.6 21.1 21.2 21.4 10.5 11.3 13.4 14.1 14.6 15.3 6.3 7.2 10.4 10.6 11.3 12.1 4.4 5.1 7.7 7.9 8.5 9.2 4.3 5.0 7.7 7.9 8.5 9.2 20.0 19.9 19.6 19.6 19.7 20.0
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 5
Note: KT ZMICO has two major shareholders, Krungthai Bank PLC (KTB) and Seamico Securities PLC (ZMICO). Therefore, prior to making investments in the securities of KTB and ZMICO, investors should consider the risk factors carefully. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO, SAWAD, TFG. A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, ZMICO, MAKRO, CPALL, SAFARI, M‐CHAI, POMPUI, TTL, NMG, SAWAD.
Corporate Governance Report (CGR) Source: Sec, Thai Institute of Directors Association (IOD) Excellent (scores: 90 ‐ 100) Very Good (scores: 80 – 89) Good (scores: 70 – 79)
Satisfactory (scores: 60 – 69) Pass (scores: 50 – 59) No Logo N/A (scores: below 50)
Anti‐corruption Progress Indicator Source: Sec, Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC)
Level 1 (Committed) : Organization’s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.) Level 5 (Extended) : Extension of the anti‐corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases Insufficient or not clearly defined policy Data not available / no policy
DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user.
KT ZMICO RESEARCH – RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS
SECTOR RECOMMENDATIONS
BUY: Expecting positive total returns of 15% or more OVERWEIGHT: The industry, as defined by the analyst's over the next 12 months coverage universe, is expected to outperform the relevant OUTPERFORM: Expecting total returns between ‐10% primary market index by at least 10% over the next 12 months. to +15%; returns expected to exceed market returns NEUTRAL: The industry, as defined by the analyst's coverage over a six‐month period due to specific catalysts universe, is expected to perform in line with the relevant UNDERPERFORM: Expecting total returns between primary market index over the next 12 months. ‐10% to +15%; returns expected to be below market returns over a six‐month period due to specific UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant catalysts SELL: Expecting negative total returns of 10% or more primary market index by 10% over the next 12 months. over the next 12 months
REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 5
KT ZMICO Securities Company Limited Head Office
WWW.KTZMICO.COM
8th, 15th‐17th,19th, 21st Floor, Liberty Square Bldg., 287 Silom Road, Bangrak, Bangkok, Thailand 10500 Telephone: (66‐2) 695‐5000 Fax: (66‐2) 695‐5173 KT ZMICO Connect 662 695 5555
Central World Branch
Amarin Branch
22nd Floor, Amarin Building, 496‐502 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 018‐6200 Fax: (66‐2) 018‐6298, (66‐2) 018‐6299
8th Floor, Ton Son Tower, 900 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 626‐6000 Fax: (66‐2) 626‐6111
Phaholyothin Branch
Sindhorn Branch
Viphavadee Branch
2nd Floor, Sindhorn Tower 1, 130‐132 Wireless Road, Lumpini, Pathumwan, Bangkok 10330 Telephone: (66‐2) 627‐3550 Fax: (66‐2) 627‐3582, 627‐3600
G Floor, Lao Peng Nguan 1 Bldg., 333 Soi Cheypuand, Viphavadee‐Rangsit Road, Ladyao, Jatujak, Bangkok 10900 Telephone: (66‐2) 013‐8600 Fax: (66‐2) 618‐8569
BangKhae Branch
Chiang Mai Branch
Pak Chong Branch
999/9 The Offices at Central World, 16th Fl., Rama 1 Rd, Pathumwan, Bangkok 10330 Telephone: (66‐2) 264‐5888 Fax: (66‐2) 264 5899
1291/1, Shinnawatra Tower II, 3rd Floor, Phaholyothin Road, Phayathai, Bangkok 10400 Telephone: (66‐2) 686‐1500 Fax: (66‐2) 686‐1666
Ploenchit Branch
518 The Mall Group Building Bangkhae Branch, 6th Floor, Petchkasem Road, North Bangkhae, Bangkhae, Bangkok 10160 Telephone: (66‐2) 454‐9979 Fax: (66‐2) 454‐9970
422/49 Changklan Road, Changklan Subdistrict, Amphoe Meuang, Chiang Mai 50100 Telephone: (053) 270‐072 Fax: (053) 272‐618
173 175, Mittapap Road, Nong Sarai, Pak Chong, Nakhon Ratchasima 30130 Telephone: (044) 279‐511 Fax: (044) 279‐574
Korat Branch
Khon Kaen Branch
Chonburi Branch
624/9 Changphuek Road, T.Naimaung, A.Maung, Nakhon Ratchasima 30000 Telephone: (044) 247222 Fax: (044) 247171
5th Floor, Charoen Thani Princess Hotel, 260 Srichan Road, T. Naimuang, A. Muang, Khon Kaen 40000 Telephone: (043) 389‐171‐193 Fax: (043) 389‐209
4th Floor, Forum Plaza Bldg., 870/52 Sukhumvit Road, T. Bangplasoy, A. Muang, Cholburi 20000 Telephone: (038) 287‐635 Fax: (038) 287‐637
Pattaya Branch
Chachoengsao Branch
Hat Yai Branch
Easy Point 2, 392/65 Moo.9, T.Nong Prue, A. Bang Lamung, Chonburi 20260 Telephone: (038) 420‐965 Fax: (038) 420‐968
108/34‐36 Mahajakkrapad Road, T.Namuang, A.Muang, Chachoengsao 24000 Telephone: (038) 813‐088 Fax: (038) 813‐099
200/301, 200/303 JULDIS HATYAI PLAZA Floor 3 , Niphat‐Uthit 3 Rd, Hatyai Songkhla 90110 Telephone: (074) 355530‐3 Fax: (074) 355534
Phuket Branch
22/61‐63, Luang Por Wat Chalong Road, Talat Yai, Mueang Phuket, Phuket 83000 Telephone: (076) 222‐811, (076) 222‐683 Fax: (076) 222‐861
Phitsanulok Branch
227/171 Borom Trilokkanat Road, Muang, Phitsanulok 65000 Telephone: 055‐219‐255 to 8 Fax: 055‐219‐259
Nakhon Pathom
Cyber Branch Ayutthaya
Cyber Branch @ North Nana
Cyber Branch Chiangrai
KrungThai Bank, Rojana Branch 253 Moo 5, Rojana Road, Phai Ling, Phra Nakhon Si Ayutthaya, Phra Nakhonsi Ayutthaya, 13000 Telephone: 035‐242‐477 Fax: 035‐242‐476
Krung Thai Bank PCL, 2 Floor, North Nana Branch 35 Sukhumvit Rd., Klong Toey Nua Subdistrict , Wattana District , Bangkok 10110 Telephone: 083‐490‐2871
River Hotel (Building 3rd),1156 Petchakasem Road, Sanamchan Subdistrict, Amphoe Meuang , Nakhon Pathom Province 73000 Telephone: (034) 271300 Fax: (034) 271300 #100
KrungThai Bank, Hayaek Phokhun Mengrai Branch 116/19 Moo 19, Highway 110 Road, Rop Wiang, Mueang Chiang Rai, Chiang Rai, 57000 Telephone: 053‐715‐067 Fax: 053‐715‐068
