Home Product Center

Home Product Center Plc (HMPRO)

Investment thesis
We reiterate our BUY call on HMPRO as our top pick in Thai Consumer space, as we believe the stock will strongly outperform its peers. The firm is expected to deliver the best YoY earnings growth during the next four quarters, but its valuation—an FY13 PER of 24.7x—is very cheap compared to the sectoral mean of 27.9x. We believe the street underestimates the scale of the SSSG recovery in 4Q12 (after it posted low single-digit SSSG for two straight quarters) and the long-term growth profile. As such, now should be a good time to take or increase positions in HMPRO ahead of the street coming to recognize its potential.

Same-store-sales growth above 10% in Oct-Nov
As expected, demand for home products recovered strongly as soon as the rainy season ended. Although there remains some cannibalization at stores in Bangna and Hadyai, SSSG exceeded 10% in Oct and Nov. We expect this trend to continue into Dec, given the low base effect from flooding last year and the release of pent-up demand (consumers delayed purchases for fear of repeated flooding). Another point of proof of the recovery in demand for home products is robust sales of Bt700m at HomePro Expo in Nov, which beat management’s expectation by 8% and set a new record. We believe these numbers are higher than street expectations, so forecast upgrade flows are likely.

Double-digit SSSG likely in 2Q13 and 3Q13
The low base set by same-store sales in 2Q-3Q12 (due to cannibalization and concerns about the risk of a recurrence of flooding) should push SSSG back up to double-digit territory again in 2Q-3Q13. That would boost sentiment toward the stock during that period.

Number of new stores likely exceeding our model
HMPRO confirms that it will open eight stores in FY13 and aims to have at least 80 outlets by YE16. That means the firm will have to open 6-8 new locations a year, FY14-16. However, we talked recently with management, who said HMPRO is likely to open 8-10 stores a year for at least the next couple of years, as the firm wants to secure the best locations and be in place to cater to fast-growing demand upcountry. This aggressive rollout plan indicates some scope for upside to our forecasts (see Figure 2), as we assume that HMPRO will have 80 stores at YE16 with eight outlet openings in FY13, seven in FY14 and six per year in FY15-16.

Best earnings growth profile for the next four quarters
A strong recovery in same-store sales, an aggressive rollout plan and ongoing margin expansion should enable HMPRO to deliver the best YoY earnings growth in the sector over the next four quarters. We expect YoY profit expansion of 34% for 4Q12, 28% for 1Q13, 31% for 2Q13 and 35% for 3Q13, versus a sector average of 26% (see Figure 3).