Home Product Center

Home Product Center Plc (HMPRO)
- 3Q13 profit to grow yoy and qoq from good same store sales and new store sales
3Q13 profit is likely to grow well, projected at B769m, rising 5%qoq and
24%yoy. Sales volume is likely to grow nicely by 21%yoy, with same store sales
growing by 6.5%yoy. Despite lower purchasing power, HMPRO is not affected
much because it focuses on middle-upper customers, as well as low base in
3Q12 due to the slowdown of post-flood spending. Moreover, seven branches
have been opened in 4Q12-3Q13. Gross margin is projected to rise by 0.7%yoy
because of high margin products, especially house brand contribution, which
would rise by 1.4%, from 19.6% in 2Q12 to 21%. However, this would be
negated by selling and administrative expense that would rise due to marketing
activities, as well as prepaid expenses on Mega Home branches before launching
in late-2013. Thus, SG&A/Sales is projected to rise from 22.6% in 3Q12 to 23%.
However, net margin would rise only from 7.3% in 3Q12 to 7.5%.
- 4Q13 profit to make record high. New branches to open in 2014.
Benefits from property fund
4Q13 profit is likely to make the record high due to high season and opening of
six or seven new branches in 4Q13: four or five branches of HMPRO and two
branches of Mega Home, in Nawanakorn (19 October) and Mae Sod (November),
as targeted this year to open 10-11 branches of HMPRO and two branches of
Mega Home. Though loss is projected from the early opening of first two Mega
Home, it is not likely to impact 4Q13 earnings much, as HMPRO has recognized
expenses on Mega Home since 1Q13-3Q13. Also, Mega Home is likely to
recognize income in 4Q13 for the first quarter, so there would be no implicit
effect on HMPRO's total profit. HMPRO's FY2013 profit would grow by 21.5%yoy,
and FY2014 profit would grow by 22.8% due to benefit from the opening of new
branches in 2014, which is projected close to 2013. HMPRO will lease some
rental land of Hua Hin branch for the establishment of LH Shopping Center
property fund and earn net income of B2.5bn, which would be additional budget
for the opening of new branches (B500m for each branch).
- Good growth, attractive for long term, short-term price rises rapidly. "BUY" on weakness
HMPRO's growth is promising, so long-term investment is still attractive.
However, share price has risen by over 25% after the announcement on
dividend payment at the existing share: stock dividend ratio of 6:1 (XD date is
28 October) and the property fund. Thus, HMPRO has only 14% upside from
FY2013 fair value (DCF, 9.2% WACC, 4% TV growth) of B15.1 (before XD date)
and B13 (after XD date). For short-term strategy, we recommend "BUY" on
weakness.