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Results for 4Q14 in line with model BUY
Home Product Center Plc (HMPRO)
Investment thesis
Earnings were as expected
HMPRO reported 4Q14 net profit of Bt1bn, up 11% YoY and 34% QoQ. The figure was in line with our estimate and that of the consensus.
Results highlights
Sales rose 18% YoY to Bt13bn for the quarter, of which Bt776m were contributed by Mega Home and Bt57m from the HomePro store in Malaysia (which opened in late Nov). The standalone sales at HomePro grew 13% YoY, driven by 5% SSSG and new stores.
Gross margin for the quarter was 25.5% down from 27% in 4Q13 and 26.2% in 3Q14, due to the contribution of Mega Home. Gross margin of HomePro operations in Thailand expanded 79 bps YoY to 26.4%, thanks to a change in its product sales mix.
SG&A expenses/sales ratio declined from 23.5% in 4Q13 to 22.4% in 4Q14, thanks mainly to improved efficiency and the building of economies-of-scale at Mega Home.
Rental and service income rose 18% to Bt351m due mainly to an increase in rental rates and space addition at the new phase of its Hua Hin Market Village.
The company’s balance sheet remains healthy. Net gearing was 0.73x at YE14, and that is expected to fall sharply after asset monetization in 2H15.
HMPRO announced a stock dividend for existing shareholders at a ratio of 15:1 and a cash dividend of Bt0.07333/share, XD on April 17.
Outlook
We expect SSSG to soften from the high base last year, but in contrast, the bottom-line growth should accelerate on the back of improving profitability at both Mega Home and HomePro operations in Thailand.
What’s changed?
Our forecasts and target price stand unchanged.
Recommendation
We believe now is a good time to start taking a position in HMPRO. The slow profit growth phase should have ended and we expect strong earnings expansion to start building momentum in 1Q15.
