Home Product Center

...Home Product Center Plc (HMPRO)

What’s new? The board of directors approved an interim dividend payment, as follows:
1) A cash dividend of Bt0.022 /share.
2) A stock dividend at a ratio of 5:1.
The XD date is October 12 for both the cash and stock dividends.
Comment: The stock dividend (essentially a stock split) will technically increase share liquidity and cause a dilution effect of 16.67%. Shareholder wealth will remain unchanged following the split. After the stock dividend, our EPS forecasts for FY12-13 would be diluted from Bt0.46 and Bt0.58, respectively, to Bt0.38 and Bt0.48.
The stock dividend may generate positive sentiment toward HMPRO in the short-term. Looking back to the two stock dividends last year, the share price rose by 5% on the first XD date (April 12, 2011 and by 4.3% on the second XD date (October 7, 2011). Assuming that the same pattern plays out this time, short-term traders should be able to make an absolute gain from the event.
Recommendation: Despite anticipation of soft 3Q12 earnings—the rainy season is a period of low demand for home decorating and DIY products—the stock dividend may boost the share price in the short-term. HMPRO’s long-term business outlook is strong, driven by aggressive expansion, a rising standard of living (particularly in the provinces) and an ongoing consumer behavior shift to shop for home products. We expect a QoQ and YoY jump in sales in 4Q12 on seasonality and demand expansion related to full renovations of homes that were damaged by the 4Q11 flooding.
We already had a fundamental BUY rating on the stock; it is now also worth taking a position in as a short-term trading play.