Home Product Center - The Nation

Asia Plus Securities November 9, 2012 5:29 pm

Home Product Center (HMPRO)

Maintain plan of 2013's 8 new branches, as plan of Malaysia branches gets clearer

According to yesterday's analyst meeting, the executive has revealed that

there're currently still no benefits from customers who have partially restored

their houses in case the flood comes this year. However, with the situation

that tends to improve and the high season, we're convinced that 4Q12 profit

would hit the record high and urge FY2012 profit to grow by 35% YoY. For

the plan of 2013 branch expansion assigned at 8 units, there're likely to be

more branches than mentioned (with certain areas for 4 branches). In case

the mentioned issue turns true, this would boost the growth from our current

assumption at only 8 branches. Nevertheless, the new branches must be

considered whether they're close to one another or not since this might bring

about cannibalization. In addition, there has been progress in the plan of the

first 2 new branches in Malaysia which is in the process of contract signing

for 2 plots of land (conclusion would be obtained soon). If this is completed

within this year, the mentioned 2 new branches would be ready for opening

in 2013. Although the cost of opening branches in Malaysia is higher than in

Thailand due to high price of land, we believe that profitability won't be

significantly different from Thai branches since the population's purchasing

power is in a high level. We hold positive prospect toward the mentioned

issue, considered additional upside that isn't included in our forecast.

Studies on new business type, expanding toward contractors to become all-in-one leader

There's another interesting matter; HMPRO has prepared to expand the new

business type which still focuses on home-improvement products, but more

on contractors and construction materials (similar to GLOBAL and

Thaiwatsadu) as the company is currently focusing mainly on residents.

Preliminary, HMPRO has revealed that it would create a new brand with

100% investment which would not be opened in HomePro stores. This is

because of the company's 7-8 branches lapping in the same areas with

GLOBAL's (Khon Kaen, Udon Thani, Ratchaburi, Chonburi, Chiangmai, and

Nakhon Pathom); however, both companies still have thrived well, as the

potential of the mentioned market that is still considerably high. Considering

the market share of the overall home-improvement market (as illustrated on

the back page), 58% of the market share still mainly goes to the traditional

trading stores (most of them are SCG's outlets) that tend to constantly lose

the market share to the modern trades due higher competitiveness. In

addition, the traditional trades are even among the customers of modern

trades (based on GLOBAL's 13% of sales from traditional store). According to

GLOBAL's and Thaiwatsadu's number of branches at 19 and 22 units in 19

and 22 provinces respectively, HMPRO has opportunities to expand its

business in various provinces since retail contractors usually purchase

products mainly from the local stores in order to save the transportation fee.

Although the commercial agenda hasn't been revealed, we believe that it

might be seen soon due to fully aggressive branch expansion plan of GLOBAL

and Thaiwatsadu.

Long-term outlook constantly on uptrend. Recommend "BUY"

We still hold our positive prospect for HMPRO's plan to urge future growth for

both international and domestic branches, considered the first company of

the retail-sale sector with most clearness. Moreover, the company's customer

base has also increased. Accordingly, we reiterate our recommendation of

"BUY" (FV@B15.6).

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Source: http://www.nationmultimedia.com/business/Home-Product-Center-30194020.html

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