Officemate

Office Mate Plc (OFM) 

 

Investment thesis

We like OFM because its managers have vision and clearly understand changing technology and customer preferences. We regard pressure from the start-up of the e-commerce business and the weak operation of B2S in 2H14 as only hiccups. Our investment horizon rolls over to YE15 and our target price rises to Bt58 from Bt49. With 16% upside to our new target, we have upgraded our rating from HOLD to BUY.

Unparalleled office supply retailer

OFM aims to be not only a seller of office supplies, but a total office solutions provider. Besides selling office supplies and furniture, it recently introduced office-related services, such as printing solutions and office layout design. The firm plans to offer more services in the future; IT solutions is likely to be next. Moreover, OFM has installed an e-ordering system in stores, enabling customers to order products at stores to be delivered the next day. This system can effectively reduce store space to only 600-800sq.m from 2,000sq.m, substantially reducing both OPEX and CAPEX. In the future, the stores may function as service spots and show rooms.

B2S recovery on-track

Weak domestic consumption and declining sales of physical books and entertainment products squeezed B2S’s total sales by 4% and same-store sales by 7% in 2Q14. This trend is likely to persist into 3Q14. However, there is now light at the end of the tunnel since B2S successfully launched a new prototype store at Central World. 

The store has transformed from a typical book and stationery retailer to a hub of ideas, creativity, inspiration and knowledge. Some space for books and entertainment products has been reallocated to arts & crafts, cartoon figures, collectible items and in-store activities. The smaller space for books and entertainment products will not affect sales as they have been migrated to online purchases and e-formats. As such, the store’s sales increased 20%, even though total selling area has been slashed 40%. OFM aims to roll out this concept to other branches, but has yet to offer guidance how fast it will be.

To be #1 online store in Thailand

Despite entering the market later than competitors, management is confident that central.co.th will become the leading online store in Thailand, due to its extensive range of products, superior logistics infrastructure and the strong consumer brand awareness of Central. The number of products to be offered on the website is expected to increase from 20k SKUs currently to 100k SKUs by YE14 and to 120-150K SKUs in FY15, thanks to the opening of a new 10k sq.m DC in September. OFM should have a logistics cost edge over other players, as it could share the existing office delivery system.