Home Product Center (HMPRO)
Price survives fall
Home Product Center Plc (HMPRO)
2Q12 profit increases back to normal 24% YoY after end of flood benef
After an acceleration of house restoration after flood crisis since 1Q12, 2Q12 profit has returned to normal as it increases by 24% YoY but stable compared with QoQ, in which the 2nd quarter is normally higher than the 1st quarter. Moreover, sales in 2Q12 have increased by 14.5% due to the same-store sales that are projected to grow less than the average that is 7-8% YoY as a result from rapid spending since 1Q12 and the new branches (Hat Yai and Mega Bangna) that have cannibalized the existing stores. However, the openings of new 7 branches since 3Q11-2Q12 have enhanced the growth of total sales while other income has increased by 13% YoY. For gross margin, it has increased continuously from 25.8% in 2Q11 to 26.5% due to the proportion of house brand sales from 18.1% to 18.9%. In terms of SG&A/sales, it has risen from 21.6% in 2Q11 to 22.9% as a result from the increased minimum wage; however, this can be offset by the tax that has been reduced by 23%.
2H12 improves from 1H12… plan of new branches in
2013 tends to exceed projection. Likely to revise up 1H12 net profit is 47% from FY2012 forecast. 3Q12 profit is likely to stabilize from 2Q12 due to the same-store sales that tend to stabilize close to one in 2Q12 because of customers who had already hurried on products for house restoration since 1Q12. Although there might be an impact from the rainy season in 3Q12, the profit is projected to return to grow splendidly once again in 4Q12 due to the openings of 4 new branches in 2H12, so the company would complete its target of 8 openings for 2012. Furthermore, there is an increase of sales from HomePro Expo which will urge the customers’ purchasing power on both new houses and old houses. Combined with the positive factor from low base in 4Q11 due to flood impact, 2012 net profit is projected to stand at B2,570m or a growth of 28% YoY and is projected to grow continuously by 30% YoY in 2013 as a result from openings of 8 new branches in FY2012. In addition, the number of new branches in 2013 is very likely to outgrow our assumption that projects at 5 braches, so we might have to revise up our 2013 profit forecast after a clear
conclusion from the analyst meeting on 10 August 2012.
Price survives fall. Upgrade to “HOLD”
For the past 3 months, we have recommended “SELL”. The price has fallen by 11% and although the current price is still higher than our fair value (FV@B11), 2013 is projected to grow by 30% YoY due to the growth that still tends to be in an uptrend. We will use 2013 fair value at B14.3 after 3Q12m, so we upgrade our recommendation to “HOLD” in a short term.
