Home Product Center
Profit likely to grow as price has undergone correction BUY
Home Product Center Plc (HMPRO)
2Q13 profit as projected, thanking to rising income
Due to aggressive launching of new branches in 3Q12-2Q13, as well as samestore-
sales growth that resumed at 7%, HMPRO 2Q13 sales rose 22.8% yoy, as
well as rental (from increasing rented area) and sponsors from suppliers that
rose to 17% yoy. Gross margin rose significantly from 26.5% in 2Q12 to 27.2%
because of high margin products, especially house brand products, which
increased by 1% from 19.5% in 2Q13 to 20.5%. However, these were negated
by rising selling and administrative expense from the launchings of new
branches, utility cost and recognition of expenses in new 'Mega Home' stores to
be opened in late-2013. Therefore, net profit increased at the close rate to sales,
rising 24% yoy, 6% qoq to B730m, as projected.
- New branches to be opened in 2H13, negating decreasing purchasing power, boosted by property fund
Though there is pressure from declining purchasing power, HMPRO is not likely
to be pressed severely. Most HMPRO's customers are mid- to high-incomers.
Over 55% of HMPRO's income is from provincial customers with high purchasing
power, as new stores opened in (February) and Chumporn (March) has already
reached break-even point and made profit. Also, 7 new stores are planned to be
opened in 2H13 (1 has been opened). Including 3 stores opened in 1H13, there
will be total 10 new stores at end-2013, likely to boost earnings to continuously
make new highs qoq to 4Q13. However, pressing factor that might damage the
earnings is loss from 2 Mega Home stores (reduced from 3 stores) to be opened
in late-4Q13, which would not break even in 1-2 years and might face harsher
loss than projected, as well as making HMPRO's profit lower than expected.
However, we maintain our forecast, as extraordinary item from property fund in
Hua Hin at B1-2bn total (with additional EPS of B0.12-0.24) has not been
recognized. It would be clear in late-4Q13 if it would be complete within this
year or 2014, which would be reported later.
- Profit likely to grow as price has undergone correction, reiterate "BUY"
Price that has undergone correction in over 2 months should have reached the
bottom. Profit in the remainder of the year is likely to flourish and become the
most outstanding in the sector. Moreover, speculation from property fund might
boost the price to outperform. We reiterate "BUY" ([email protected]) as the top pick of
retail sector.
