Bangkok--4 Dec--TRIS Rating TRIS Rating Co., Ltd. has affirmed the company rating of Home Product Center PLC (HMPRO) and the ratings of HMPRO’s senior debentures (HPRO083A, HPRO093A) at “A-” with “stable” outlook. The ratings reflect HMPRO’s leading position in the home improvement industry in Thailand, its well-accepted brand name, satisfactory operating performance, and a healthy financial position. The ratings also take into consideration the decline in same-store sales growth, weakening consumer confidence, and the softening housing market. The “stable” outlook reflects the expectation that HMPRO will maintain its leading position in the modern home improvement retail industry. The company is expected to maintain an acceptable leverage level as it expands. A slowdown in the property development market has lowered consumer spending for new housing units. However, demand for renovation and repair of existing homes is expected to partly mitigate the 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 November 2007, HMPRO had 29 stores, with 17 located in the Bangkok Metropolitan Area (BMA) and 12 upcountry. A new store is expected to open in Rayong province in December 2007, which would give HMPRO 30 stores with total sales area of 203,500 square meters (sq.m.). 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 products; electrical and lighting products; and home decorations. HMPRO has successfully expanded its outlets over the past 10 years, opening an average of 2-3 new stores per year. A shift in consumer preferences towards modern retail outlets has fuelled its expansion, as HMPRO’s stores have become more popular than traditional stores. Changing consumer behavior has also facilitated penetration into the do-it-yourself segment. With its store expansion strategy, HMPRO has gained adequate size to benefit from economies of scale, which generates cost savings for the company. A higher proportion of private label and imported products has enabled the company to maintain its gross margin of approximately 23%, even during the weak market in 2007. TRIS Rating said, for the first nine months of 2007, HMPRO sales continued to increase to Bt11,523 million, a 13% increase from the same period in 2006. However, its same-store sales declined by 4.9% for the first nine months of 2007, due to the slowdown in the housing market, the decline in consumer confidence, and a rising cannibalization rate among its BMA stores. HMPRO has made a strategic decision to focus on opening more stores in provincial areas to serve customers in new markets. The company’s product mix has also been adjusted to match changing customer preferences and their affordability during the slowdown in consumer spending. HMPRO’s financial position remains healthy. Its total debt to capitalization ratio improved from 54.21% in 2005 to 50.97% in 2006 and to 50.58% as of September 2007, after the Bt955 million capital increase in December 2006. The company’s liquidity continues to be strong, due to its efficient management cash. Its fund from operations increased from Bt818 million in 2005 to Bt1,118 million in 2006 and to Bt1,003 million for the first nine months of 2007, due mainly to store expansion and income from rental space. Though HMPRO’s total debt increased from Bt2,108 million in 2005 to Bt3,160 million in 2006, and to Bt3,303 million for the first nine months of 2007, its ratio of fund from operations to total debt remained strong at 27.46% in 2006 and 23.55% (non-annualized) for the first nine months of 2007, said TRIS Rating.