CMNT> HMPRO: KGI recommends Outperform, target price is Bt13.50/share Home Product Center (HMPRO.BK/HMPRO TB)* Outperform Maintained Price as of 5 Aug 2014 9.95 2015 target price (Bt/shr) 13.50 Unchanged / Revised up (down) (%) 23.90 Upside/downside (%) 30.65 Key messages The overall tone of yesterdays analyst meeting was positive. Management believes the home improvement market hit bottom in 1H14 and is ready to pick up strongly, particularly in big cities. Hence, HMPRO will focus on store expansion in big cities like Phuket and Chiang Mai in 2H14. Though we revised down 2014 net profit by 5.2% due to our conservative GPM forecast, 2014 earnings should still rise a strong 11.1% YoY to Bt3.4bn. With the good earnings outlook, we rate Outperform on the counter with our target price rolled over to 2015 at Bt13.50. Trading data Mkt cap (Bt bn/US$mn) 112.9 / 3.7 Outstanding shares (mn) 10,959 Foreign ownership (mn) 1,523 3M avg. daily trading (mn) 18.5 52-week trading range (Bt) 8.3-14.0 Performance (%) 3M 6M 12M Absolute 17.7 17.7 -26.4 Relative 8.0 -1.4 -31.2 Clear signs of recovery Event The overall tone of yesterdays analyst meeting was positive. Management believes the home improvement market hit bottom in 1H14 and is ready to pick up strongly, particularly in big cities With its ongoing expansion and good same-store-sales growth (SSSG), full-year earnings should continue to rise as planned. lmpact Clear signs of recovery and ongoing expansion continues Better sentiment in 2H14 should be seen thanks to a revival confidence as seen by a pickup in the Consumer Confidence Index (CCI) in June, 2014 to 75.1 points, the highest in eight months, since November 2013. With clear signs of a fast recovery, particularly in big cities, HMPRO will focus on its expansion in Chiang Mai this September, Korat and Sriracha in October and Phuket and Pattaya in December. Meanwhile, its first overseas branch in Kuala Lumpur, Malaysia, is on track for 4Q14. Revising down 2014 net profit by 5.2% We are optimistic about the home improvement market and expect SSSG to stay firm at 3.0-5.0% in 2H14, compared to 5.3% in 1H14 (dropped HoH due to cannibalization). Together with ongoing expansion of five stores in 2H14, 2014 sales should rise 16.4% YoY to Bt46.7bn. Nevertheless, the lower than expected gross profit margin (GPM) in 1H14 due to the change in product mix, such as electrical appliances, and lower margin from MegaHome caused us to trim our 2014 GPM forecast 40bps to 26.6% and this resulted in our 2014 net profit forecast being revised down by 5.2% to Bt3.4bn. A year to rally in 2015 HMPRO is expected to show robust earnings growth of 18.1% YoY to Bt4.0bn in 2015. This would be mainly due to strong SSSG of 5.0% and ongoing expansion with at least five stores. Meanwhile, a breakeven in the Mega Home format and increased private brand sales should help keep GPM at 26.7% and offset rising SG&A from pre-opening expenses. New format is on the way A new smaller HMPRO format is likely to be seen in response to the rapid growth in smaller communities and smaller provinces. Details of when and where the new format would open are still limited. This is not included in our forecast and we set it as an earnings upside. Valuation & Action With the bright outlook set to continue, we rate Outperform with our target price rolled over to 2015, at Bt13.50. Risks Slower-than-expected economic recovery would trim purchasing power. Analyst: Nat Panassutrakorn 66.2658.8888 Ext.8849 [email protected] By KGI Securities (Thailand) Public Company Limited on Aug 6, 2014 KGI Securities (Thailand) Plc.(The Company) disclaims all warranties with regards to all information contained herein. In no event shall the Company be liable for any direct, indirect or any damages whatsoever resulting from loss of income or profits, arising by utilization and reliance on the information herein. All information hereunder does not constitute a solicitation to buy or sell any securities but constitutes our sole judgment as of this date and are subject to change without notice.
Posted on: Wed, 06 Aug 2014 02:47:11 +0000
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