Sunday, June 28, 2009

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Home Product Center (HMPR.BK/HMPRO TB) Reality has turned out far better than anticipated / Bt4.48 - Outperform from Neutral / Earnings preview.
* Expect robust earnings growth of 14.2% YoY thanks to solid SSS growth and store expansion.
* Revised 2009-10 earnings upward on higher SSS growth.
* Re-rated PE multiplier to its normal range of 10x.
* Upgrade to Outperform with a new 2009 target of Bt5.40.
Expect HMPRO to post stellar earnings growth of Bt213mn Despite the economic slowdown and political unease in 1Q09, we surprisingly expect HMPRO to post splendid earnings of Bt213mn in 1Q09, up from Bt187mn in 1Q08 (+14.2%), but down from Bt343mn in 4Q08 (-37.7%), based on the positive guidance from the company. The robust YoY earnings growth of 14.2% should come from solid same store sales (SSS) growthlearn how to trade forex, the success of HomePro Expo and store expansion (32 stores in 1Q08 vs. 35 stores in 1Q09). Seasonality would be behind the QoQ drop.
Big applause for swift and efficient strategies We expect HMPRO to report SSS growth of 4.0% thanks to its good product assortment and aggressive promotions in 1Q09 (Summer Grand sale February 16 - March 8 and HomePro Expo March 13 - March 22). To mitigate the pressure on margins from aggressive promotions, HMPRO efficiently escalated its proportion of house brand products from 10.0% in 1Q08 to 13.0% in 1Q09 and plans to increase this to 15.0% by the end of the year. With these efforts, we expect the company to maintain robust earnings growth in 2009 of 10.3%.

Revised 2009-10 earnings upward With solid earnings anticipated in 1Q09 and the bottoming-out of the economy, we are comfortable in revising up our 2009-10 earnings forecasts to Bt1,058mn from Bt985mn in 2009, or up by 7.4%, and to Bt1,126mn from 1,052mn in 2010, or up by 7.0%. Our key positive revisions were: i) adjusted SSS growth up from 0.0% to 3.0% in 2009, ii) slightly revised gross margin upward, and iii) slightly trimmed SG&A to sales.
Removed discount from PE multiplier We re-rated HMPRO to the low end of its normal trading range of 10.0x. We believe that the re-rated PE multiplier is justified due to the better economic outlook and the company's sound fundamentals.
Valuation and Recommendation We upgrade our rating to Outperform from Neutral with a new 12-month target price of Bt5.40, assigning a new PE multiple of 10x (from 7.0x). At this price, we project FY09 dividend yield of 6.1.

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