Home Product Center (HMPRO)

Home Product Center Plc (HMPRO)

2012 branch expansion plan beyond expectation with 8 branches

According to the analyst meeting on last Friday, the executive manager
believes that the growth potentiality of the company is still considerably high
especially in other provinces that still expand vigorously. Moreover, the
company has chances to open new markets in the future for, such as,
customers who are contractors and lower market. Despite high competition,
HMPRO has been assertive with its qualities in fame, professionalism, and
also branches in wide range. Nevertheless, the company still focuses on the
house owners in a short term by using aggressive branch expansion in which
2013 openings of 8 new branches have been announced, higher than
projected. All of the mentioned new branches are projected to be in other
provinces, so the company has exceeded its target of 60 branches. For
HMPRO’s branches in Malaysia, there’s still a problem about land purchasing
in which a conclusive result hasn’t been brought.
 

Revise up 2012 and 2013 forecast to reflect positive factors beyond expectation

Due to the branch expansion plan of 8 branches higher than projected at 5
branches and the growth of same-store sales in 1H12 at 8.6% which is
higher than our forecast at 6%, we revise up our forecast of same-store sales
in 2012 to 8% YoY. The same-store sales are believed to shine brightly again
in 4Q12 due to low base in 4Q11 and the last part of flood benefits although
the same-store sales in 3Q12 still has to face impacts from acceleration of
customers since 1Q12 due to the flood crisis, so 3Q12 same-store sales are
projected to increased slightly by 5% which is less than FY2012 assumption.
We revise up our 2012 and 2013 profit forecast by 5% and 9% respectively
(as shown on the following page) due to customers who are observing for the
flood in 2012 and ready for restoration if there’s no flood this year, the
increasing sales from new 8 branches in which 5 of them have already been
opened. Overall, 2012 profit, based on new forecast, will stand at B2.7bn or
35% YoY increase and 36% YoY increase in 2013.
 

Growth tends to thrive while price is laggard… Upgrade to “BUY”

The company’s outstanding growth at over 35% in the past 2 years which is
higher than the sector’s average at 25% and its potential in a long run are a
result of the number of branches at in 27 provinces. We’re convinced that
there’s a chance for more branches to come for the company to compete with
the major hyper markets that currently settle in 68 provinces (58 provinces
for LOTUS and 48 provinces for Big-C), therefore we revise up fair value by
lifting PER up to 30x from 25x along with high growth potentiality. New 2012
fair value stands at B13.9 with 18% upside. In addition, HMPRO’s share price
is still quite laggard in the sector with return at only 7% compared with 32%
of the sector’s (shown in the table on the following page). Furthermore, due
to the past information that new branches had been opened more than
projected like one on 11 august 2011 that 2012’s branch expansion plan was
announced, the share price of HMPRO has increased constantly for 3 months
and has exceeded the sector and peers (shown on the following page) which
is a good chance for investment. Therefore, we upgrade our recommendation
from “HOLD” to “BUY”.