Home Product Center

Home Product Center Plc (HMPRO) 

 

- 1Q15 profit stays flat from last year  

HMPRO reported 1Q15 net profit of B734m, decreasing 29%qoq on a seasonal effect and showing flat growth yoy, in line with our forecast. Sales grew only 10.8%yoy, versus a normal growth of 20%yoy, because same store sales dropped around 2-3%yoy for the first time in several years as a result of cannibalization from opening of new stores in late 2014 (Chiang Mai, Korat, Pattaya, and Phuket) and a temporary close of a Market Village store for renovations (excluding such items, same store sales stayed flat yoy in this quarter). Normalized margin lowered like in the past several quarters since gross margin decreased 20bps yoy due to low margin and loss from Mega Home (gross margin from sole HMPRO rose around 10bps yoy). SG&A/sales increased 20bps yoy as cost, mostly fixed cost, increased at a faster rate than revenues (due to higher expense on personnel salaries and depreciation from new store opening), while there was also loss from a store opened in Malaysia in late 2014. 

- Profit to gradually revive, particularly in 2H15  

1Q15 net profit accounts for only 19% of our full year forecast, but we believe HMPRO has already bottomed out and the profit will be recovering gradually from now on, especially in 2H15 which will be a peak period after negative factors in 1Q15 start to subside. 1) The impact from cannibalization will decrease after a full-year operation, so same store sales would be able to show growth again. 2) The renovation at a Market Village store (Suvarnabhumi) for expanding its leasable space by 20,000 sqm or almost 20% of the current leasable space of 120,000 sqm will be complete and ready for opening since May 2015 onward. 3. Mega Home will be able to show profit for the first time in 3Q15 after the four stores opened have received good response (overall, the four stores show positive EBIT at present). 

- Good entry point. BUY recommended  

HMPRO is still a good choice of commerce plays; the company is the least affected by the slowing economy because it depends mostly on medium to high-end customers. The 7% fall of the share price YTD, versus the sector’s average of 0%, already reflected dull earnings performance at the beginning of the year but not a promising outlook and the P/E ratio of 25x is lower than the sector’s average of 27x. We recommend BUY, expecting the share price to outperform from now on.