Home Product Center

Home Product Center Plc (HMPRO)  

 

- To open fewer branches, from eight to five 

 

According to the analyst meeting, the company plans to open fewer new HMPRO branches in 2015, from eight to five (our assumption is eight) as a result of the sluggish economy, especially outside Bangkok. However, if the economy rebound, HMPRO would open eight new branches as usual (the company already has available lands). Three or four Mega Home branches will be opened as we expected (one branch already opened in Prachinburi). However, opening fewer branches would have less adverse effect than projected, weakening HMPRO's earnings by only 1.5% since most new branches will be opened at the second half of the year. Therefore, we maintain our earnings forecast. 

 

- Positive factors to boost profit 

 

The prolonged economic slowdown has affected middle- and high-end customer base as consumers have become more cautious about spending. However, spending sentiment has been depressed but not purchasing power. The number of customer with high spending per ticket has increased and sales during HMPRO EXPO exceeded the target, reflecting that purchasing power has remained strong, while customers with low spending per ticket have been more cautious about their purchases. However, HMPRO could maintain their sales better than peers. Excluding the effect of cannibalization from new branches, same store sales have stayed unchanged while peers' have dropped slightly. Mega Home's sales have been growing continuously with over 10%yoy same store sales growth, likely to make a breakeven in 2H15. In addition, Market Village (Suvarnabhumi) that will be opened in May will grant HMPRO 20% more leasable space. HMPRO’s earnings have possibly passed its low already, likely to grow continuously from now on and jump by 14%yoy in 2015. 

 

- BUY 

 

Despite negative sentiment from the plan to open fewer new branches, the share price has substantially absorbed this factor. FY2015 expected P/E ratio of 23.6x is lower than the sector's average of 26.4x, attractive for long-term investment. We recommend BUY.