Bangkok--23 Jan--TRIS Rating
TRIS Rating Co., Ltd. has upgraded the ratings of Home Product Center PLC (HMPRO) and its senior debentures (HPRO083A, HPRO093A) to “A-” from “BBB+” with “stable” outlook. The upgrades reflect HMPRO’s improved operating performance, which is due to its successful strategy of adding more stores to gain adequate size and purchasing power. The ratings reflect the company’s continuing position as the leading home improvement retailer in Thailand, its well-accepted brand name, and a healthy balance sheet. The ratings also take into consideration the decline in same-store sales growth, and the softening housing market.
The “stable” outlook reflects the expectation that HMPRO will maintain its leading position in the modern home improvement industry. The company is expected to continue to improve operating efficiencies and to maintain an acceptable leverage level while pursuing store expansion. A slowdown in the property development market may lower consumer spending for new housing units. However, demand for renovation and repair of existing homes is expected to partly mitigate lower demand for new homes.
TRIS Rating reported that HMPRO is Thailand’s leading modern home improvement retailer, operating under the “HomePro” brand name. As of December 2006, HMPRO had 26 stores, with 15 located in the Bangkok Metropolitan Area (BMA) and 11 upcountry. Each store offers more than 60,000 stock-keeping units of home-related products in five categories: home improvement products; bathroom and sanitary ware; kitchen, appliances and audio visual; electrical and lighting products; and home decorations. The company has successfully expanded its outlets, opening an average of 2-3 new stores per year. A shift in consumer preferences towards modern retail outlets has fuelled its expansion by replacing traditional stores, while changing consumer behavior has facilitated penetration into new do-it-yourself markets. HMPRO benefits significantly from its larger size, which enables it to obtain favorable purchasing agreement from its suppliers. The company has consequently been able to maintain its operating margin of 9%-10% even during the weak market.
TRIS Rating said, for the first nine months of 2006, HMPRO’s sales continued to increase to Bt10,155 million, a 14% increase from the same period in 2005. However, same-store sales fell by 1% due to the slowdown in the housing market and rising cannibalization rate among its BMA stores. HMPRO has made a strategic decision to focus on opening more stores in provincial areas. Though the provincial stores may generate lower turnover than the BMA’s stores, they will capture new markets and reduce the effect of cannibalization. New stores, which have large retail spaces for rent, were successfully launched under the “HomePro Village” concept at Bangna and in Huahin in 2006. With 48,200 square meters (sq.m.) of retail rental space, the two new stores are expected to consistently generate approximately Bt400 million of rental income per year.
HMPRO’s financial position remains healthy. Though its total debt to capitalization ratio increased to 62% as of September 2006, the ratio will be improved following its Bt955 million capital increase in December 2006. The company’s liquidity continues to be strong, with suppliers’ credit terms providing sufficient coverage to fund working capital.
The political uncertainty following the bombings in Bangkok on 31 December 2006 has further deteriorated consumer confidence and softened the housing market. However, home improvement centers are expected to have lower cyclicality than the housing market because repair and remodeling work on existing homes could partially offset slower purchases of new homes, said TRIS Rating.