MBKET Rates “BUY” on HMPRO with TP of ฿16 as It Is on Path to Recovery

Maybank Kim Eng Securities (Thailand) (MBKET) has given a “BUY” recommendation on  Home Product Center Public Company Limited (HMPRO) with a target price of 16.00 baht per share as it is on path to recovery.

MBKET forecast HMPRO’s 2Q21 earnings to increase both QoQ and YoY from SSSG recovering from low base and higher margins. Earnings should improve better in 2H21, especially in 4Q21, the high season, while benefiting from government measures expected to launch to boost consumer spending. MBKET believes HMPRO is one of the stocks with  a  strong business base and high-efficient management. 

SSSG in April to Mid-May was quite positive due to the low base last year with lockdown where  42-69 HomePro stores were closed, accounting for 45-74% of all branches from April 1 – May 16, 2020. However, when the lockdown was lifted, coupled with pent-up demand, SSSG recovered to a positive in June 2020. Hence, the SSSG in June this year may slow down to negative. 

MBKET therefore estimates that 2Q21 SSSG will be positive by 6-8%, while SSSG of MegaHome should outperform HomePro, with slight gains from higher steel prices. However, Malaysian’s operations would be hurt by the lockdown in June. Overall, MBKET expects HMPRO’s sales to rise 9% YoY from the positive HomePro and MegaHome’s SSSG and the opening of 2 HomePro stores in 4Q20.

Gross margin is estimated to increase 170 bps YoY to 25.5% driven by operational efficiencies and the low base in 2020 when sales of electrical appliances (low margin) increased from online sales during the lockdown. Rental and other income tend to increase along with sales growth. MBKET expects net profit to rise 3% QoQ and 49% YoY to 1.41 billion baht.

Earnings outlook for 2H21 should outperform that of 1H21, especially in the high season 4Q21 where earnings are the highest of the year. In addition, spending tends to recover, partly due to the government measures to stimulate consumption, which is expected to come out more. The proportion of private brand products imported from China will also recover after experiencing transport problems in the  past. Meanwhile, performance in Malaysia is expected to improve once the lockdown is eased as earnings have breakeven already in 1Q21 but slowed down during the lockdown in June.