Home Product Center Plc

Home Product Center (HMPRO)

Q3 2012 profit still affected by decelerated spending, rising only 5% QoQ
According to the customers’ spending that still has decelerated because of
the acceleration on house restoration since 1Q12 and the cannibalization of 2
new branches (Hat Yai and Kanchanawanit; and Mega Bangna and
Suvarnabhumi), HMPRO’s 3Q12 profit stands at B620m or 24% YoY increase
and only 5% QoQ increase. The total sales have risen by 19% YoY due to the
same-store sales that have ascended close to that of 2Q12 by approx 3%
YoY. Moreover, there’s 16% YoY of increased sales from opening 8 new
branches since 4Q11-3Q12. For the gross margin, it has stabilized from 3Q12
at around 26.3%. Nevertheless, the effects from minimum-wage policy have
urged SG&A/sales to soar from 22.4% in 3Q11 to 22.6%. Still, this could be
compensated by the tax rate that has been cut to 23%.


Q4 2012 profit tends to improve continuously toward 2013 due to 8 new branches
Although 9M12 net profit is considered 67% of our FY2012 forecast, 4Q12
profit is projected to peak due to seasonal benefits and HomePro EXPO on
16-25 November 2012 which would bring the revenue projected not lower
than B650m. For the customer’s purchasing power, it is projected to improve
along with the season as the same-store sales are projected to rise to the
normal level at around 8% YoY from the low in 4Q11. Moreover, there’re
benefits from some customers’ houses that have been partially restored just
in case the flood returns once again. This would become beneficial for the
company during November-December 2012. In addition, there would be one
more branch to be opened in Ratchaburi on 2 November 2012. We’re
convinced that FY2012 profit would still stand at B2.7bn or 35% YoY increase
as projected, likely to grow continuously toward 2013 as a result of revenue
recognition for full year from 8 branches and another 8 branches in 2012 and
another 8 branches in 2013 (of which each half would be opened in 1H13 and
2H13 respectively).


Long-term outlook still on uptrend. Recommend “BUY”
HMPRO still possesses long-term potential growth due to its outstanding point
that is 26 branches spreading all over the country. As a result, there’s a lot
more chances for the company to expand its branches in the provincial areas.
The company’s aggressive branch expansion plan aims to open 80 branches
(from the current 52 branches) in 3-5 years ahead. Although the competitors
like GLOBAL and Thaiwatsadu also have plans of aggressive branch
expansion, they aren’t directly the match for HMPRO since they only some
products in common. Moreover, HMPRO is advantageous for having 20
branches all over Bangkok while its competitors have only 4 branches.
According to the study of the past 3 years, although there’s aggressive
competition in the home improvement sector, the modern trades of every
company have satisfyingly increased profit (illustrated next page’s graph) due
mainly to the snatch of market share from the traditional trade sector.
Accordingly, we’re convinced that the growth of HMPRO in 3 years ahead
would still constantly be on uptrend, thriving on the top of retail-sale sector
in 2013. We reiterate our recommendation of “BUY”.