Home Product Center

Home Product Center Plc (HMPRO) 

- 4Q13 profit to grow only 7%yoy due to political turmoil
The political unrest has started since 31 October 2013, pressing HMPRO. Thus,
4Q13 net profit is projected at B918m, making the year's highest, but growing
by only 7%yoy, lower than 9M13 average growth of 18%yoy. Though sales
volume is expected to grow by 14%yoy as a result of the opening of 13 new
branches in 2013 (11 branches of HMPRO and two branches of Mega Home),
compensating for same store sales that is likely to rise by only 2% (growing
averagely 4%yoy in 9M13). HMPRO's profit was pressed most in November, as
total sales from HMPRO Expo (15-24 November) is expected at B650m, slightly
lower than targeted. 4Q13 normalized profit is expected to drop from 8.8% in
4Q12 to 8.3% as a result of sales promotion and expense from Mega Home (loss
would still be booked). Moreover, interest expense is projected to increase by
130%yoy or 46%qoq to B110m from B5bn loan in late-3Q13.
- FY2014 net profit not to prosper due to politics and loss from new branches
FY2014 earnings result is not likely to prosper. HMPRO's FY2014 net profit is
projected to grow by only 13%yoy (8% lower than the consensus). HMPRO
would benefit from the opening of 12 new branches (eight branches of HMPRO,
around two to four branches of Mega Home). However, B150m loss (4% of total
profit) from the opening of new Mega Home branches and the first branch of
HMPRO in Malaysia (opened in late-2014) would be recognized in 2014. As the
political unrest is likely to continue in 1Q14, property sector would be pressed as
the launching of new projects (especially horizontal projects) would be delayed
(sales from new houses makes up 20% of HMPRO's sales, mostly from
horizontal projects), and sales from existing houses might be pressed by
sluggish purchasing power. Thus, we conservatively project HMPRO's sales
volume (counting only HMPRO branches) to grow by 14%yoy, lower than the
previous four-year average growth of 19%yoy and 9M13 average growth of
17%yoy.
- Price undergoes correction already, lower than seven-year average expected PER, but still not good entry point
Price has already undergone correction substantially, making FY2014 expected
PER of 24x, lower than the previous seven-year average expected PER of 26x.
However, as the political factor is unstable, there is still risk from profit
downside. Moreover, short-term earnings result would still be pressed and there
is still no positive factor to make HMPRO outperform in near future, making
HMPRO unattractive. We reiterate "HOLD".