Home Product Center

Home Product Center Plc (HMPRO)

In line with estimate
HMPRO reported a 3Q12 net profit of Bt620m, up by 24% YoY and 5% QoQ. The figure was in line with our estimate, but 4% below the consensus.

Results highlights
Sales rose 19% YoY to Bt8.46bn, slightly higher than our estimate, thanks to stronger-than-expected performances among new stores. 3Q12 SSSG remained slow at 2.5%, slightly lower than the 2.7% posted for 2Q12, as customers had been concerned about a possible repeat flooding event and due to persisting cannibalization in the Bangna and Hadyai areas. However, the cannibalization diminished to 20% in 3Q12 from 30% in 2Q12.
Gross margin was slightly below our estimate. It expanded only 8 bps YoY to 26.34% in 3Q12. The impact of a greater proportion of house brands in sales mix (from 18.6% in 3Q11 to 19.6% in 3Q12) was mostly offset by hard sales promotions in order to stimulate demand and lower sales of high-margin flood prevention items.

Outlook
We expect a strong 4Q12 performance, boosted by both an operational recovery and the low based effect caused by the 4Q11 flooding. SSSG should rebound to around 7%, as post-rainy season demand for home products kicks in. Gross margin is expected to expand further on fewer price promotions during shopping high season.

What’s changed?
Our earnings forecast and YE13 target price stand unchanged.
Recommendation
We believe HMPRO is a good recovery play for 4Q12. The stock has declined by 1.4% and underperformed the SET by 9.4% since early April, when demand for home products started to fall. In our view, the current stock price is good for entry. The firm’s long-term growth story remains promising, underpinned by an aggressive expansion plan and an ongoing provincial lifestyle shift (in tandem with a rising standard of living), which will generate stronger demand for home products.