Home Product Center

Home Product Center Plc (HMPRO)
 

Investment thesis: The information we grabbed from
analyst meeting yesterday made us even more bullish
on both HMPRO’s short- and long-term earnings
outlooks. We believe the market has yet to price in the
scope for upside from ongoing expansion and robust
post-flooding SSSG. We expect the firm to report the
fastest EPS growth in Retail space this year. Moreover,
its valuation is undemanding—an FY12 PER of 23.4x,
below the peer average of 24.1x. We reiterate our BUY
call with a YE12 target price of Bt12.60.
Robust post-flooding demand: SSSG was 4.5% in
4Q11 and 6.3% in FY11. Excluding stores affected by
the flooding, SSSG would be 7% in 4Q11 and 8.1% in
FY11. We expect stronger SSSG in 1Q12, led by a
post-inundation surge in demand. The CEO said YTD
SSSG is in double digits, even though demand at the
moment is dominated by basic repairs to make
dwellings habitable. Demand for full renovations should
manifest once customers are confident that their homes
won’t be inundated again, so sales expansion
momentum should be sustained through the year. We
expect the firm to soon raise its FY12 SSSG target from
6%, as this target didn’t take post-flooding demand into
account—we assume SSSG of 8.8% for FY12.
Upside from store openings: Management reaffirmed
its plan to launch eight new outlets this year—Trang in
Feb, Mega Bangna in 2Q12, Buriram and Hat Yai 2 in
late 2Q12 and another four outlets in 2H12. Moreover,
we suspect that the number of new stores to open in
2013 will exceed the consensus assumption of 4-5
locations, based on the fact that HMPRO has raised its
FY12 CAPEX guidance to Bt6bn from Bt3.5-4.0 bn.
Normally, CAPEX per new store is Bt500-600m. As
such, HMPRO might achieve its 60-store target next
year, rather than in FY14. Note that our model still
assumes only five new outlets will open next year.
Gross margin keeps rising: The proportion of house
brands in the sales mix increased from 16% in FY10 to
18.1% in FY11, which boosted gross margin from
25.0% in FY10 to 25.7% in FY11. HMPRO targets
increasing its private label mix to 20% in FY12 and 25%
in FY14, which should expand GM further to 26.3% in
FY12 and 27.1% in FY14.