Home Product Center Plc

Home Product Center Plc (HMPRO)

Stock dividend payment ratio is 5 existing shares per 1 stock dividend, including cash dividend
HMPRO has exceeded our projection with its 1H12’s interim dividend yield at B0.22/share, which is allocated into 2 parts as follows. 1) The ratio of paid dividend for ordinary shares is 5 current shares per 1 dividend share, not exceeding the total of 1,174.40 million shares (par value is B1) or B0.2/share. In case that any shareholder holds the indivisible share remaining after the share allocation, the dividend shall be paid in cash by B0.2/share. 2) The paid dividend by cash is at a rate of B0.02/share at not over B130.5m in total (to help pay the withholding tax for investors). XD date is on 12 October 2012 and the dividend payment will be made on 30 October 2012. In addition, the board of director has also approved to increase the registered capital from the previous registered capital of B5,880.60m to be the new registered capital of B7,055m. Accordingly, the new ordinary share will be issued by 1,174.4 million shares at the par value of B1/share in order to support the abovementioned stock dividend payment.

16.7% dilution effect but trading liquidity enhanced in long term

The dividend payment will help sustain the financial liquidity of HMPRO for business expansion, especially aggressive openings of new branches, and enhance liquidity of stock trading in a long term. Moreover, the dividend payment does not cause any changes to shareholder equity because the retained earnings will be transferred to be registered and paid up capital at the same value of the dividend share paid to shareholders. However, BVS and EPS after dividend share payment will decrease from increasing number of shares, or dilution effect of 16.7% will occur.

2012 FV before XD is B13.9 but FV after XD is B11.5

The fair value before XD still stands at B13.9 while the number of dividend shares has increased, which is a short-term positive sentiment. Accordingly, the share price has a chance of rising close
to the mentioned fair valued like it did in the past. However, fair value after XD will be diluted to B11.5 along with an increase of shares as a result of share dilution effect that has pushed EPS
downward from B0.46/share to B0.38/share. In addition, we project there will be B0.2/share of dividend in 2H12 with 15.8% upside, therefore we reiterate our recommendation “BUY”.