 2Q23 net profit was below market estimates at Bt703mn, -32% YoY and -20% QoQ, from weaker sales and higher SG&A. We cut our 2023F by 14% as we factor in the weak SSS. In 3Q23TD, SSS has contracted in the high single digits YoY, mainly on softer sales volume and partly on weaker steel prices YoY. We expect 3Q23F earnings to be this year’s bottom, down YoY from lower sales and margin and QoQ from seasonality. We maintain NEUTRAL with a new end-2023 DCF (WACC of 7% and LT growth of 2.5%) TP of B18.5 (from Bt20). 2Q23 net profit was Bt703mn, -32% YoY and -20% QoQ, 14% below consensus on weaker-than-expected sales and higher-than-expected SG&A. The drop YoY was due to lower sales, weaker gross margin and higher SG&A/sales and the drop QoQ was seasonal. 2Q23 revenue. Revenue fell 8% YoY to Bt8.5bn. In 2Q23, SSS contracted 9.5% YoY (vs +1.5% YoY in 2Q22 and -8.7% YoY in 1Q23) on 1) lower steel product selling price (steel sales accounted for 15% of total sales); 2) lower (mid single-digits YoY) construction materials sales volume (total construction material sales including steel products accounted for 30% of total sales) on low construction activity; 3) lower (low single-digits YoY) non-construction material sales volume from muted purchasing power upcountry. The Ministry of Commerce (MOC) reports that in 2Q23, local steel product prices, using local rebar price as a proxy (30-40% of GLOBAL’s steel sales), fell 20% YoY and 5% QoQ; using local light lip channel steel as a proxy for structural steel (60-70% of steel sales), prices fell 23% YoY and 4% QoQ. In 2Q23, GLOBAL opened a new store, giving it 80 stores (+4% YoY but flat QoQ) at end-2Q23. Other items in 2Q23. Gross margin was 25.4%, -110bps YoY, with a lower margin for steel products from lower steel prices outstripping the price rises for some high-margin private brand products in March 2023 (private brand sales to total sales was close to 24% in 2Q23, flat YoY and QoQ). SG&A/sales jumped 250bps YoY to 16.7%, off a rise in SG&A (+8% YoY) with higher electricity cost, more expenses from store expansion and higher marketing expenses related to the launch of the “ttb Global House” credit card and cash card in mid-2023, amid softer sales. Equity income was Bt21mn, -25% YoY, from lower contribution from Myanmar and Laos from worsened currency translation. Earnings revision and outlook. We cut our 2023F earnings by 14% as we factor in the cut in our assumption for SSS growth to -6% YoY from -2% YoY earlier. In 3Q23TD, SSS has contracted in the high single digits YoY (the sector’s weakest thus far), mainly on lower sales volume and partly on weaker steel prices YoY. Despite a lower adverse effect from on lower steel prices YoY in 2H23 from 1H23, farm income turned down YoY in May-June. We will have to keep an eye on the impact on purchasing power upcountry further. We expect its 3Q23F to be this year’s bottom, dropping YoY from lower sales and margin and QoQ from seasonality. Key risks are changes in purchasing power and higher costs from inflationary pressure, changes in steel prices and farm income. |
