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Strong sales hindered by high SG&A

Home Product Center Plc


- Despite the coup and restricted shop hours due to the curfew, we expect HMPRO to

report good sales growth from both store expansion and solid SSS growth.

high SG&A from new format launches will continue to put

margins. We maintain Outperform on the stock.


- We expect 2Q14 total revenue of Bt12.8bn, up 23.2% YoY,

15 stores opened over the past 12 months (up from 56 stores at end

solid 4.0% YoY SSS growth. As the majority of their sales are contributed by existing

homeowners (80% of sales) and the rest by new home

to deliver resilient SSS growth over 2014.

- Store opening plan on track. During 2Q14, HMPRO opened four stores in

provincial Thailand, three of which are traditional HomePro formats in Lampang,

Prachuap Khiri Khan and Surin Provinces and a MegaHome store in Chonburi

Province. Year-to-date, HMPRO has opened five stores (3 HomePro and 2

MegaHome), and the company is on track with its full

stores (8 HomePro, 2 MegaHome and 1 Malaysia HomePro).

- We expect stable margin, supported by growing private label sales.

expect gross profit margin to slightly decline by 20bps YoY to 31.1% as margin

improvement from the rising private label sales contribution is offset by rising

depreciation expenses from aggressive store openings.

- High SG&A driven by preopening and startup.

operation for its MegaHome format (4 stores currently) and high startup cost for its

upcoming Malaysia HomePro store, we expect the SG&A t

at 22.2%, on par with that in 1Q14.

- We expect 2Q14 net profit of Bt825m, up 12.9

to rising SG&A from aggressive expansion and interest expenses for capex funding,

we expect net profit to grow slower than revenue.

Earnings and target price revision

- We lower 2014-16E net profit by 3% to adjust for higher

new format expansion.

Price catalyst

- 12-month price target: Bt12.50 based on a DCF methodology.

- Catalyst: Strong SSS growth, successful new format expansion, rising private label

sales contribution

Action and recommendation

- We remain positive on the long-term outlook for HMPRO given its strategy to

penetrate new markets despite near-term pressure from mounting SG&A for the new

format expansion. We keep our Outperform rating on the stock with an unchanged

TP of Bt12.5.

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