Home Product Center

Home Product Center Plc (HMPRO)

4Q12 profit peaks to B857m, rising 38% both YoY and QoQ
According to concerns toward deceleration of spending after the flood crisis
that have eased and seasonal benefits in 4Q12, HMPRO’s 4Q12 profit has
returned to grow outstandingly to hit the year’s record high at B857m or
38% increase for both QoQ and YoY. Sales have enlarged notably once again
by 26% YoY due to same-store sales that have increased by 6.5% YoY, new
8 branch openings in 2012, and also HomePro Expo in 4Q12 that has
remarkably generated revenue by B710m which is better than targeted
(recognizing by 90% in 4Q12). For the profitability, it still has grown quite
well. Although the gross margin has only stabilized from 4Q11 at around
26.2%, HMPRO’s good cost control and economies of scale have raised the
selling and administrative expenses close to the level of sales despite the
minimum wage policy. At the same time, the company still has benefited
from the cut of corporate tax to 23%; therefore, FY2012 profit is still
outstanding at B2,679m or 33.6% YoY increase which is close to our forecast.

Plan to issue debentures of B20bn to support aggressive branch expansion
Recently, HMPRO has prepared to issue long-term debentures at not over
B20bn, projected to be gradually issued from now on to support the
aggressive branch expansion in 3 years ahead. In 2013, the company might
open new branches more than the target of 8 braches, possibly up to 10
branches under high CAPEX of B7-8bn (compared with B6bn of CAPEX for
only 8 branch openings in 2012). Furthermore, HMPRO would maintain the
level of CAPEX in 2-3 years ahead, so there’s a chance of more branch
openings than our assumption of 8 branches in 2013 and 5 branches for each
2014, 2015, and 2016. Nevertheless, 2013 net profit is preliminarily
projected to be still in line with our forecast. We believe that branch openings
in 2013 would be higher than targeted by only 2 branches and might not be
full-year opening because it would have to be offset by the increased debt
which is a result of debentures issued higher than projected. In terms of
HMPRO’s financial structure, it is still solid with only 0.56x interest bearing
debt/equity at end-2012. According to gradual debenture issuance, the debt
ratio wouldn’t leap significantly.
Announces to pay 6 current shares: 1 div share, going XD on 12 Apr 2013
As a result of the need for money to invest continuously, HMPRO has recently
made an announcement to pay the stock dividend once again at 6 current
shares: 1 stock dividend, considered B0.1667/share. Moreover, the cash
dividend has also been announced at B0.0186/share, going XD on 12 April
2013 (payment is due on 30 April 2013). Accordingly, there is 14% of
dilution effect, so the fair value would decline from B15.6 to B13.4 after
going XD. However, HMPRO still has supports (additional upside not included
in forecast) from branch expansion in Malaysia and the customer base that
focuses more on contractors which would help boost long-term growth,
projected to be made clearer after the analyst meeting on 26 February 2013.
Accordingly, we’re likely to revise up our profit forecast since 2014 onward to
reflect the company’s long-term growth. We reiterate our recommendation of
“BUY” for HMPRO though the share price is already fully valued.