TRIS Rating Affirms Company and Issue Ratings of “HMPRO”at “A” with “Positive” Outlook

TRIS Rating Co., Ltd. has affirmed the company rating and the ratings of senior debentures of Home Product Center PLC (HMPRO) at “A” with “positive” outlook changed from “stable”. The ratings reflect HMPRO’s leading position in the home improvement retailing industry in Thailand, well-accepted brand name, strong operating performance, and healthy cash flow. The ratings also take into consideration increasing competition among modern home improvement retailers, and the sustainability of the economic recovery.

The “positive” outlook reflects the improvement in HMPRO’s operational efficiency and its success in developing house-brand products. The ratings should be upgraded if the company is able to sustain its strong operating performance and operating cash flow while maintaining an acceptable leverage level as it expands.

TRIS Rating reported that HMPRO is Thailand’s leading home improvement retailer, operating under the “HomePro” brand name. Currently, its major shareholders are Land & Houses PLC (30.26%) and Quality Houses PLC (20.38%). The company offers a wide range of home-related products, such as home improvement products, bathroom and sanitary ware, kitchen, and home decorations. Since its establishment in 1995, the company has successfully pursued a growth strategy by opening an average of three new stores every year. A shift in consumer preferences towards modern retail outlets has fuelled its expansion.

TRIS Rating said, as of October 2010, HMPRO operated 40 stores, with 19 located in Greater Bangkok and 21 upcountry. The company operates a total sales area of 264,500 square meters (sq.m.) and retail space for rent of 78,317 sq.m. With its continual expansion, HMPRO has established a strong footprint in the modern home improvement retailing industry nationwide. In 2010, HMPRO opened five stores, two in Greater Bangkok and three upcountry. The company’s planned expansion over the next few years will be focused on major provinces of Thailand and in major cities of neighboring countries.

For the first nine months of 2010, sales rose to Bt17,293 million, an 18.77% increase from the same period in 2009. Same-store sales grew by 14.70% for the first nine months of 2010, significantly higher than growth of 5.10% recorded in 2009 and 6.60% in 2008. The recent leap in same-store sales derived mainly from the economic recovery and more transfers of newly-constructed homes spurred by the government tax incentives which expired in June 2010. Operational improvements and dynamic changes in product mix to serve customer preferences also supported the growth in same-store sales. The gross profit margin increased from 24.27% in 2009 to 24.97% for the first nine months of 2010, partly due to higher contributions from house-brand products. The proportion of private label products increased from 13.59% of total sales in 2009 to 15.60% for the first nine months of 2010.

HMPRO’s financial position has strengthened. Funds from operations (FFO) increased from Bt1,777 million in 2008 to Bt2,058 million in 2009 and to Bt1,816 million for the first nine months of 2010, underpinned by strong sales growth and improved profitability. Liquidity continues to be strong due to efficient cash management. Total debt increased from Bt2,179 million in 2009 to Bt2,783 million as of September 2010 to finance construction of new stores and the renovation of existing stores. However, the ratio of FFO to total debt remained strong at 63.49% in 2009 and 47.19% (non-annualized) for the first nine months of 2010, said TRIS Rating. -- End

Company Rating: Affirmed at A Issue Ratings: HMPRO115A: Bt500 million senior debentures due 2011 Affirmed at A HMPRO11NA: Bt630 million senior debentures due 2011 Affirmed at A Rating Outlook: Positive from Stable ? Copyright 2010, 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. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.