Home Product Center

Home Product Center Plc (HMPRO)

Investment thesis
HMPRO has been over-penalized by the market, which is concerned about the current slowdown in discretionary consumption spending. Its share price has dived 27% from its peak in late May. But HMPRO looks like the only discretionary retailer under our coverage that hasn’t been hurt by the consumption slowdown. Its performance has remained strong and momentum should be sustained into 2H13. As such, we view its stock price dive as a good opportunity to load the stock into portfolios at a discount. We maintain our BUY rating with a YE13 target price of Bt13.90.
Resilient to the current consumption spending slowdown
The slowdown in discretionary spending appears to be largely limited to low- to mid-income demographics, as their spending capacity has been eaten into by HP loan repayment obligations tied to the first-time car buyer scheme. HMPRO’s customers, however, are mostly in mid- to high-income demographics. Even if they were to buy cars under the scheme, the impact on their discretionary spending power would be minimal. Moreover, home owners typically set forward budgets for housing renovation and construction, so a hiccup in spending shouldn’t impact on sales of home products. As such, we estimate strong 2Q13 SSSG of about 7%.
Led by expansion
Besides good existing store performances, aggressive expansion remains a key growth driver over the mid- to long-term. In 1H13, HMPRO opened three new stores and relocated one outlet (to a bigger size). It confirmed plans to roll out another seven locations in 2H13, which will make for a total of 63 HomePro stores by YE13 and enlarge sales space by 20% YoY. Next year, HMPRO plans to open 6-8 HomePro outlets in Thailand and two in Malaysia. With regard to Mega Home—the low-cost hardware and building material operator—HMPRO plans to debut two stores in 4Q13 and probably 3-5 next year. We expect the combined sales space of HomePro and Mega Home to jump by 32% in FY13 and 30% in FY14.
Anticipate good 2Q13 results
HMPRO should report a 2Q13 net profit of Bt706m, up by 19% YoY and 2% QoQ. We expect an 18% YoY top-line increase to Bt9.35bn, led by 7% SSSG and seven more stores added during the past four quarters. GM should expand further on a greater proportion of private labels in the sales mix, but EBIT margin will probably be flat YoY, due to pre-operating expenses for Mega Home and overseas expansion. 3Q13 promises to be even stronger in terms of YoY growth, thanks to the very low base set by 3Q12, due to cannibalization (at stores in Bangna and Hadyai) and concerns that there might be another round of flooding during that period.