Maybank Investment Bank (Maybank) said today in its Thailand Company Update that Home Product Center’s (HMPRO TB) risk-reward profile remains favourable and reiterated a BUY rating for its high ROE and attractive dividend yield.
Maybank maintained its BUY recommendation and DCF-based target price (7.3% WACC, 3% growth) of THB15. HMPRO fell 22% year-to-date and is trading at 17.7 times FY24E P/E, which is below -2.5 standard deviations from its 5-year mean. Despite weaker same-store sales growth (SSSG), Maybank expected moderate earnings growth in 2Q24 driven by new store openings and margin expansion, anticipating SSSG improvement in 2H24E due to a low base and domestic consumption recovery. HMPRO’s high return on equity (ROE) at 25.9% compared to peers’ 14.9% and a dividend yield of 4.6% were noted as attractive to investors.
Maybank forecasted 2Q24 earnings (due 30 July) to increase by 5% year-on-year but drop 1% quarter-on-quarter due to seasonality, reaching THB1.69 billion. Sales were expected to grow by 2% year-on-year as 3 HomePro and 4 Mega Home stores were opened in the past 12 months. HomePro’s same-store sales were likely to weaken by -4% in 2Q24 compared to +4.9% in 2Q23 and -2.1% in 1Q24. However, Mega Home’s SSSG should recover to 0% from -2% in 2Q23 and -4% in 1Q24, with indirect benefits from fiscal budget disbursement. Gross margin was expected to widen by 7 basis points year-on-year to 26.4%, driven by an increasing proportion of private-label products from both HomePro and Mega Home.
Maybank anticipated improving SSSG in 3Q-4Q24E due to a low base last year (-3.6%/-8.5% for HomePro and -1.5%/-7% for Mega Home in 3Q23/4Q23) and increasing tourist arrivals enhancing purchasing power. Ongoing store expansions in 2H24, including 2-3 HomePro and 3 Mega Home stores, were expected. HMPRO’s gross margin was forecasted to sustain its uptrend in 2H24 due to increasing high-margin private label products.
HMPRO underperformed by falling 22% year-to-date versus -9% for the sector. It was trading at 17.7 times FY24E P/E, below -2.5 standard deviations from its 5-year average. ROE was expected at 25.9%, relatively high compared to 15%/17% for local/regional peers. Maybank also expected a dividend yield of 4.6%, the highest in the retail sector, at THB0.42 per share in FY24E (THB0.19 in 1H24 and THB0.23 in 2H24).
