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Home Product Center Plc (HMPRO) 

- 4Q14 profit makes year's peak as expected   

 

HMPRO's net profit made the year's peak at B1,029m, rising 34%qoq (thanks to high season) and 11%yoy (slightly faster pace than 9M14). Revenue from sales jumped 18%yoy as same store sales rose by 5% (the best among peers) and about ten new branches were opened in 4Q14 (seven branches of HMPRO and four branches of Mega Home). Although gross margin plunged from 4Q13 by 150bps due to weak gross margin and loss from Mega Home, SG&A/Sales decreased from 4Q13 by 110bps and made the year's low since sales from HMPRO and Mega Home improved significantly in high season while some of operating cost was fixed. Overall, FY2014 earnings were in line with our projection.  

 

- Profit to rebound in 2015   

 

HMPRO's profit is estimated to improve by 14% in 2015 since sales are expected to jump by 22% (up 20% in 2014), given that same store sales grows 5% and 12 new branches (eight branches of HMPRO and four branches of Mega Home) are opened. Normalized margin would not be very strong but likely to show improvement, especially in 2H15 where Mega Homes would reach the breakeven point and start making profit after facing B60m loss (2% of total profit) in 2014. However, 1Q15 profit is expected to make the year's low and not improve significantly from 1Q14 since loss (temporary) from Malaysia branch would be booked for a full quarter and same store sales growth is expected to drop from 5%yoy to 2%yoy as new branches were opened in some provinces that already have HMPRO (Korat, Phuket, and Chonburi) in late 2014; this is still better than peers since their same store sales are projected to stay flat in 1Q15. 

 

- BUY. 15 existing shares: one stock dividend   

 

HMPRO announced stock dividend payment at the ratio of 15 existing shares to one stock dividend plus B0.073/share cash dividend (B0.059/share after tax); XD date is April 17, and dividend will be paid on May 8. As a result of dilution effect, EPS is expected to drop 6.25%, but this would improve HMPRO's liquidity for future business expansion. FY2015 fair value would drop from B9.8 to B9.2 after XD date; we reiterate BUY.