TRIS Rating Co., Ltd. has assigned a “A-” rating to the proposed up to Bt500 million senior debentures of Home Product Center PLC (HMPRO). At the same time, TRIS Rating has affirmed the company ratings of HMPRO and its existing debentures at “A-” The rating outlook is “stable”. 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 the company’s same-store sales growth and weak but gradually improving consumer confidence and housing demand. 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 houses. However, demand for renovation and repair of existing houses is expected to partly mitigate the slow demand for new house units. TRIS Rating reported that HMPRO is Thailand’s leading modern home improvement retailer, operating under the “HomePro” brand name. As of December 2007, HMPRO had 30 stores, with 17 located in the Bangkok Metropolitan Area (BMA) and 13 upcountry. The company’s total sales area at the end of 2007 was 205,000 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. TRIS Rating said HMPRO has successfully expanded its outlets over the past 10 years, opening an average of 2-3 new stores per year. The shift in consumer preferences towards modern retail outlets has fuelled the 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. 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 2006-2007. In 2007, despite its same-store sales declining by 4.6%, HMPRO’s sales continued to increase by 12% to Bt15,943 million and its net profit increased by 18% to Bt710 million. To alleviate the cannibalization rate among its BMA stores, HMPRO has made a strategic decision to open more stores in provincial areas to serve customers in new markets. In 2008, the company plans to open four new stores, all upcountry. The product mix has also been adjusted to match changing customer preferences and offer more affordable products during the slowdown in consumer spending. HMPRO’s financial position remains healthy. Following a Bt955 million capital increase in December 2006, its total debt to capitalization ratio improved from 54.21% in 2005 to 51.48% in 2006 and to 47.49% in 2007. The company’s liquidity continues to be strong, due to its efficient cash management. Funds from operations (FFO) increased from Bt818 million in 2005 to Bt1,183 million in 2006 and to Bt1,459 million in 2007, due mainly to store expansion and income from rental space. The ratio of FFOs to total debt remained strong at 29.04% in 2006 and 37.32% in 2007, said TRIS Rating. -- End Home Product Center PLC (HMPRO) Company Rating: Affirmed at A-Issue Ratings:HPRO093A: Bt500 million senior debentures due 2009 Affirmed at A-Up to Bt500 million senior debentures due 2011 A-Rating Outlook: Stable -------------------------------------------------------Copyright 2008, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. 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