Home Product Center

Home Product Center Plc (HMPRO)

- 3Q13 profit slightly lower than expected due to lower income and rising financial cost
HMPRO's 3Q13 net profit was reported at B720m, staying flat qoq and rising
17%yoy, 6% lower than expected. Sales and service income and other income
were 4% lower than expected due to seasonal effect. Moreover, financial cost
was B20m higher than expected, as HMPRO borrowed additional B5bn for
business extension. Gross margin rose by 0.8%yoy because of high margin
products, especially house brand contribution, which increased by 1%, from
19.6% in 3Q12 to 20.6%. However, this was negated by selling and
administrative expense that rose by 0.7%yoy due to increase in minimum wage
and prepaid expenses on new Mega Home branches. Most expense on Mega
Home was recognized in 3Q13, before Mega Home branches are opened and
generate income in 4Q13. HMPRO could keep 3Q13 net margin at 7.2%, close to
3Q12 but 0.3% lower than expected.
- 4Q13 profit to peak. To grow continuously in 2014
9M13 profit made up 66% of FY2013 earnings forecast. We maintain our earning
forecast, as 4Q13 profit is likely to peak due to spending season. Despite lower
purchasing power, HMPRO is not affected much because it focuses on middleupper
customers. Branches opened in early-2013, e.g. Chantaburi (February)
and Chumporn (March), have made a breakeven and made profit, taking quite a
short time (close to the average at six months). Moreover, six or seven new
branched are planned to be opened in 4Q13: four or five branches of HMPRO
and two branches of Mega Home, in Nawanakorn (19 October) and Mae Sod
(November), as targeted this year to open 10-11 branches of HMPRO and two
branches of Mega Home. Thus, HMPRO's FY2013 earnings result is projected to
grow by 17%yoy (4% lower than our projection), and continue growing in
FY2014 by 22%. In 2014, new branches opened in 2013 will be available for the
whole year, making a breakeven. Moreover, at least 10 branches (eight
branches of HMPRO and from two to four branches of Mega Home) would be
opened in 2014.
- Strong fundamental. Derives FY2014 fair value at B14.1. "BUY"
We still have positive outlook on HMPRO's long-term growth. Profit would peak
in 4Q13, and we have derived FY2014 fair value, rising from B13 to B14.1 with
18.5% upside from current share price. Thus, we reiterate "BUY".