Bangkok--22 Aug--TRIS Rating
TRIS Rating has assigned a rating of “A+” for the proposed issue of up to Bt2,000 million in senior unsecured debentures of Home Product Center PLC (HMPRO). At the same time, TRIS Rating has affirmed the company and its existing senior unsecured debenture ratings of HMPRO at “A+”. The outlook remains “stable”. The ratings reflect the company’s leading position in the home improvement retailing industry in Thailand, strong operating performance, and proven record in managing its home improvement centers. The ratings also take into consideration the increasing level of competition among modern home improvement retailers. The “stable” outlook reflects the expectation that HMPRO will be able to maintain its strong operating performance and acceptable leverage level while pursuing its growth strategy. The company’s new store format is expected to capture a wider group of customers and enhance the company’s operating performance in the medium term.
HMPRO is Thailand’s leading home improvement retailer, operating under the “HomePro” brand name. As of April 2014, its major shareholders were Land & Houses PLC (LH; owning 30.23%) and Quality Houses PLC (QH; 19.77%). HMPRO offers a wide range of home-related products and services, such as home improvement products, bathroom and sanitary ware, kitchen equipment, and home decorations. Since 2010, HMPRO’s growth strategy drove it to open an average of seven new stores per year, compared with an average of three new stores per year in earlier years. A shift in consumer preferences towards modern retail outlets has fuelled its expansion.
In 2013, HMPRO introduced a new type of store, the Mega Home store. Mega Home stores are large-scale warehouse style stores, designed to serve the needs of contractors, construction project owners, resellers, and end-users. Each store offers a wide range of home-related products and household products in a store area of 12,000-20,000 square meters (sq.m.)
At the end of June 2014, HMPRO owned and operated 70 stores in total, with 21 stores located in Greater Bangkok, 45 stores upcountry under HomePro format, and 4 Mega Home stores. In total, HMPRO has 543,000 sq.m. of sales area, plus 124,000 sq.m. of rental commercial area. During the first half of 2014, the company opened five new stores upcountry, three “HomePro” stores and two “Mega Home” stores. Through its ongoing expansion, HMPRO has established a strong footprint in the modern home improvement retailing industry nationwide. HMPRO’s expansion plans over the next few years will focus on provincial areas.
HMPRO’s total sales rose from Bt34,542 million in 2012 to Bt40,112 million in 2013. Sales continued to increase in the first half of 2014, climbing to Bt23,102 million, a 21% increase from the same period of 2013. Five percent of the increase was due to same-store sales, 10% from new stores, and 6% from Mega Home stores. The gross profit margin increased from 26.0% in 2012 to 26.8% in 2013, but fell slightly to 26.2% in the first half of 2014. The decrease in the gross margin was mainly due to a higher contribution from Mega Home stores, which generate lower margins than that of HomePro store.
HMPRO’s funds from operations (FFO) continued to increase, rising from Bt3,993 million in 2012 to Bt4,884 million in 2013, and to Bt2,656 million for the first six months of 2014. Liquidity remained healthy, due to efficient cash management. Owing to the aggressive investments it has made to build new stores and inventory requirements for each store, HMPRO’s debt increased from Bt5,523 million in December 2012 to Bt11,030 million as of June 2014. The total debt to capitalization ratio was 46.7% at the end of first half of 2014, compared with ratios of 34%-40% during 2009 through 2012. Despite the rise in total debt, the FFO to total debt ratio remained strong at 44.0% in 2013 and 45.1% (annualized with trailing 12 months) for the first six months of 2014.
To achieve its target of having 10-11 new stores in Thailand and a brand-new store in Malaysia, HMPRO plans to spend Bt8,000-Bt9,000 million in 2014 by using a mix of operating cash flow and new borrowings.
Home Product Center PLC (HMPRO)
Company Rating: A+
Issue Ratings: HMPRO169A: Bt4,000 million senior unsecured debentures due 2016 A+
Up to Bt2,000 million senior unsecured debentures due within 2017 A+
Rating Outlook: Stable