Home Product Center

Home Product Center Plc (HMPRO) 

 

- 2Q15 profit stays flat yoy 

2Q15 net profit was B820m, rising 12%qoq due to high season but staying flat from 2Q14. Sales grew by 10%yoy as nine new branches (eight HMPRO branches and one Mega Home branches) were opened and same store sales growth improved from -2.7%yoy in 1Q15 to -0.4%yoy in 2Q15 owing to smaller effect of cannibalization. Rental income rose by 29%yoy owing to larger leasable spaces after Market Village Suvarnabhumi reopened in May. Normalized margin dropped by 80bp from 2Q14 to 25.6% due to low margin from Mega Home branches, but SG&A/Sales decreased by 40bp yoy to 25.2% as Mega Home branches faced lower loss (positive EBIT) and economies of scale became more effective, partly compensating for expense from new branches in Malaysia and Thailand. 

- Revise down forecast by 10% in 2015 

Although improvement in same store sales and effect of cannibalization would be seen for the rest of the year and Mega Home branches would make a breakeven and generate profit late this year, the economic deceleration would continue throughout this year, so HMPRO's earnings are not likely to rebound significantly as initially expected. 1H15 net profit made up only 41% of the full-year forecast. Therefore, we revise down HMPRO's earnings forecast by 10% in 2015 and 17% in 2016, cutting projection on same store sales, the number of new branches, and profit margin. Under the new forecast, HMPRO's net profit would stay flat in 2015 and then rise by 17% in 2016 as sales grow and Mega Home branches start making profit. 

 

- SET fluctuating. Buy on weakness 

As well as SET Index, the share price has dropped as well. FY2015 expected P/E ratio of 23x is the same level as the five-year average minus 1SD, still lower than the sector's average of 26.6x. The new fair value of B7.6 still implies an upside. However, we recommend buying on weakness amidst 

market fluctuation.