Home Product Center

Home Product Center Plc (HMPRO)
 

As modeled: HMPRO reported a 1Q12 net profit of Bt610m, up 50% YoY but down 1% QoQ. The number was in line with our estimate and the consensus. 1Q12 earnings represent 22% of our FY12 forecast.
Results highlights: The strong profit was attributable to record sales of Bt8.4bn, up by 27% YoY and 9% QoQ, and a good gross margin of 24.84%, up 36 bps YoY. Note that some of the December 2011 Expo revenue was shifted back to be booked in 1Q12, so the usual seasonal effect was essentially absent. The top-line implies same-store-sales growth of 14%, somewhat higher than our estimate of 12%. The GM improvement was led by an increased number of house-branded products in HMPRO’s sales mix.
Outlook: Given that customers are now fairly confident that their houses won’t be inundated again this year, demand for full renovations should manifest. As such, we anticipate that the firm will continue to post strong YoY earnings growth for the rest of the year.
What’s changed? Our FY12 earnings forecast and YE12 target price stand unchanged for the moment, but we will revisit our model after meeting with management on May 11.
Recommendation: Although we fundamentally like HMPRO for its good earnings growth profile, which is driven by an aggressive expansion plan and GM upside, we have downgraded our rating to HOLD from BUY, as the current stock price is only 2.7% short of our YE12 target price. Moreover, HMPRO’s current high valuation (an FY12 PER of 30.0x) doesn’t offer any scope for an excess return on it.