Home Product Center

Home Product Center Plc (HMPRO)
Investment thesis
We remain positively disposed toward HMPRO after attending its analyst meeting yesterday. The firm should be one of only a few retailers to deliver good SSSG and margin expansion during the prevailing consumption slowdown. Its SSSG is expected to be the strongest in the sector during 4Q13-1Q14. Although HMPRO may look more expensive than its peers in terms of PER (26.3x for FY14 versus our Retail coverage average of 23.5x), its FY14 PEG of 1.1x is comparable with the coverage mean. Our BUY call stands with a YE14 target price of Bt12.70.
Same-store sales remain strong
HMPRO posted SSSG of 5.7% for 3Q13 and 4.1% for 9M13 and guides for sustained momentum through 4Q13. The current consumption slowdown has so far had only a minimal impact on store sales, as the spending power of major customer demographics remains solid. Sales at Bangkok outlets—which comprised 56% of the 3Q13 top-line—remained strong. The only locations to post sales slippage for the quarter were in lower Northeastern Thailand, due partly to the flooding. The firm maintains its FY13 SSSG target at 5%, implying that 4Q13 SSSG would be about 7.5%, somewhat above our assumption of 6%.
Another store added to the FY13 rollout total
HMPRO has raised the number of new HomePro branches it plans to opening in FY13 to 11 outlets from 10, enhancing our FY14 earnings forecast by 1%. Management believes the room to expand remains substantial and the firm will maintain its aggressive rollout mode next year. With regard to overseas expansion, the company confirms that it will open its first Malaysian store in IOI Mall next year.
Mega Home needs adjustments
Management admitted that Mega Home needs many adjustments, particularly to its merchandise mix. In our view, the current mix makes for unclear store positioning (see our October 21 report: “Grand Opening of Mega Home”). However, the firm said it is still in trial & error phase; it may take 6-12 months to fine-tune product assortments. HMPRO still plans to open another three pilot stores in three different regions (Mae Sot in November, Nongkhai in February 2014 and Chonburi in April 2014) and determine the best mix and market positioning. Once the model is fine-tuned to a point of success, an aggressive rollout could commence.
Asset monetization delayed to January; no impact
Management said that the spinning off of Hua Hin Market Village to LH Shopping Center Leasehold Property Fund will be pushed back to January from December. There is no impact on our earnings model, as we hadn’t factored in the gain. Despite the delay, the balance sheet will remain healthy. Net gearing is expected to be only 0.8x at YE13, far below the debt covenant ceiling of 2.5x.