Home Product Center
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To revive in 2015 HOLD
Home Product Center Plc (HMPRO)
- 3Q14 profit grows as expected
3Q14 net profit was reported at B766m(close to the consensus), dropping
3%qoq but growing 6.5%yoy (same pace as 1H14). Sales grew by 20%yoy
thanks to the opening of 11 new branches (seven branches of HMPRO and
four branches of Mega Home); same store sales rose at the normal pace of
4.5%yoy (faster than most peers). However, HMPRO's profitability dropped
for the fourth consecutive quarter. As a result of loss from newly-opened
Mega Home with 10% lower gross margin than HMPRO, HMPRO's overall
gross margin fell by 60bps from 3Q13 (gross margin of only HMPRO stayed
unchanged yoy). SG&A/Sales stayed at 23%, improving from 1Q14-2Q14;
sales from Mega Home grew while expense stayed unchanged.
- Earnings forecast revised down by 7% in 2014, 10% in 2015
Although HMPRO's earnings tends to make a year's high in the fourth
quarter (peak season), 4Q14 earnings are projected to grow by 7%yoy, the
same pace as 9M14.
Loss from the first branch in Malaysia (opened in December) would start to
be booked in 4Q14 and peak in 1Q15. In addition, same store sales are
projected to drop as new branches would be opened in some provinces that
already have HMPRO (Korat, Phuket, and Chonburi) in 4Q14. 9M14 net
profit made up 65% of FY2014 earnings forecast. We revise down HMPRO's
earnings forecast by 7% in 2014 and 10% in 2015; gross margin would be
lower than projected. Under the new forecast, net profit is estimated to
grow by 6% in 2014 and 16% in 2015; the economy is projected to rebound
and earnings from Mega Home is expected to improve (loss would decrease
faster than projected).
- Upgrade recommendation to HOLD
Though there is no factor to boost the share price in the short term. HMPRO
already passed its lowest. We switch to use FY2015 fair value (DCF, 9.2%
WACC, 3.75% TV growth) of B9.80 and upgrade our recommendation from
SELL to HOLD.
