Office Mate Plc

Pro forma core profit in line with model

Office Mate Plc (OFM)

Core pro forma profit in line with our estimate

OFM reported an FY12 net profit of Bt287m, up 138%, but below our pro forma model of Bt352m, as the reported consolidated financial statements included the performances of Office Club (Office Depot) and B2S for the full year, but the Office Mate period for only Dec 21-31, 2012. Note that the consolidated statement was prepared for the reverse acquisition—OfficeMate was the parent company on a legal basis, but was the seller on an accounting basis.

Pro forma profit for the date of the merger as of Jan 1, 2012 was Bt319m, which was still below our estimate, as there were extra expenses related to business combination. Excluding such expenses, core earnings would be in line with our expectation.

Results highlights

Reported FY12 revenue (mainly Office Club and B2S) increased 16% to Bt6.7bn, while pro forma income (including full-year revenue from Office Mate) rose 19% to Bt8.3bn. Disaggregated by distribution channel, call center and online contributed the greatest sales growth of 33%, while sales through stores (B2S and former Office Depots) rose 16%.

Reported GM expanded 39 bps YoY to 23.2%, due to greater sales volumes and a changed product mix for B2S (more stationery and gifts). The GM of Office Mate's delivery services fattened by 58bps to 25.0% on greater economies-of-scale. The SG&A/sales ratio was relatively unchanged at Office Club and B2S, but rose slightly at Office Mate, due to higher personnel expenses.

OFM announced a final DPS of Bt0.25 for 2H12. XD on March 13.

Outlook

We expect strong profit growth momentum over the next four quarters, driven by synergy-building from pooling purchases between Office Mate and Office Depot in 1H13 (which should expand GM by 200 bps) and between Office Mate and B2S in 2H13 (which should expand GM by another 70-100 bps).

What's changed?

Our forecast and target price stand unchanged.

Recommendation

We like OFM for its promising growth profile. Short-term expansion will be led by synergies brought by business integration. An aggressive store rollout and the extending of next-day delivery service coverage will facilitate medium-term growth, while e-commerce should be a substantial driver over the long-term. Although its valuation may look expensive (PERs of 42x for FY13 and 30x for FY14), OFM is one of only a few retailers under our coverage that still has a PEG ratio of below 1.0x. Our BUY rating stands.