Home Product Center

Home Product Center Plc (HMPRO)
Investment thesis
Earnings as expected
HMPRO reported a 2Q14 net profit of Bt793m, up 9% both YoY and QoQ. The figure was in line with our estimate and the consensus. 1H14 profit represents 45% of our FY14 forecast.
Results highlights
Sales rose 23% YoY to Bt12bn in 2Q14, of which around Bt0.75bn was contributed by Mega Home. The standalone sales of HomePro grew 16% YoY, while SSSG was 4.0-4.5%, up slightly from 3.8% in 1Q14.
Gross margin for the quarter was 26.4%, down from 26.9% in 2Q13, due to a bigger contribution by Mega Home and a diminished proportion of house brands in the sales mix in HomePro stores to 19.9% (20.3% in 1H14) from 20.1% in 2Q13. We suspect that the proportionate reduction in house brand sales was due to weaker receipts at upcountry stores (where the proportion of house brand sales is typically higher than for outlets in Bangkok).
EBIT margin was squeezed by 84 bps YoY to 9.2%, due to slimmer gross margin at HomePro stores, an operating loss at Mega Home and pre-operating expenses for the expansion in Malaysia. EBIT growth, thus, decelerated to only 13% in 2Q14.
Outlook
3Q14 looks set to be another slow-growth quarter. Although we expect the performance of HomePro stores in Thailand to improve and the loss at Mega Home to gradually ease, a substantial increase in pre-operating expenses for the expansion in Malaysia in 3Q14 presents a major headwind to the bottom-line.
What’s changed?
Our forecasts and target price stand unchanged.
Recommendation
HMPRO is expensive in our view. The current PER of 33.3x for FY14 and 29x for FY15 versus expected EPS growth of 10.6% in FY14 and 14.6% in FY15 makes the stock look fully valued. Our HOLD rating stands.