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Home Product Center Plc (HMPRO) 

 

 - 3Q15 profit stays flat qoq, yoy 

As a result of the economic deceleration and low season (rainy season), HMPRO posted 3Q15 net profit of B803m, staying flat qoq but rising 4.8%yoy, still in line with our projection. Total sales grew by 8.3%yoy thanks to 12 newly-opened branches (ten HMPRO branches and two Mega Home branches), while same store sales dropped by 2%yoy as a result of the slowing economy; weak sales from provincial branches (60% of total sales) negated sales growth in Bangkok. Mega Home (6-7% of total sales) showed good performance as same store sales rose by 5-6%yoy, starting to make profit for the first quarter. Rental income grew for the second quarter by 34%yoy thanks to new leasable spaces from Market Village (Suvarnabhumi) and Hua Hin. Profit margin stayed flat from 2Q15 but fell from 3Q14 because Mega Home's profit margin was lower; gross margin dropped by 30bps to 25.9%. SG&A increased at a faster pace than sales as a result of depreciation cost, personnel wages, and the branch in Malaysia. 

- Entering high season late this year 

We maintain our earnings forecast. 9M15 profit made up 69% of the full-year forecast. Although the economy would decelerate for the remainder of the year, HMPRO has possibly passed its lowest point as new economic stimulus plans have been implemented and spending season approach later this year, making the year's peak in 4Q15. HMPRO's profit is estimated to grow by only 3%yoy in 2015 and then rebound back to normal by 17% in 2016 (close to consensus) as the economy recovers, cannibalism effect subsides, and Mega Home branches generate profit for a full year. Three new Mega Home branches would be opened in 2016 and four HMPRO branches would be open. 

- Share price 1SD under average. Limited downside 

2016 P/E ratio is 23x (down 1SD from the five-year average) and 2016 fair value (DCF, 9.3% WACC, and 4% TV Growth) is B8.30, showing 17% upside. At the current price, this is a good entry point for HMPRO.