TRIS Rating Upgrades Company & Issue Ratings of “HMPRO” to “A+” from “A” with “Stable” Outlook

TRIS Rating Co., Ltd. has upgraded the company and issue ratings of Home Product Center PLC (HMPRO) to “A+” from “A” with “stable” outlook. The upgrades reflect HMPRO’s strengthened operating performance, improved financial position, and leading position in the home improvement retailing industry in Thailand. The ratings also take into consideration increasing competition among modern home improvement retailers and the anticipated slowdown in Thailand’s economy following the widespread flooding in the central region. The “stable” outlook reflects the expectation that HMPRO will be able to continually maintain its strong operating performance and operating cash flow while maintaining an acceptable leverage level, even as it continues to expand.

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 (30.07%) and Quality Houses PLC (19.89%). The company offers a wide range of home- related products, such as home improvement products, bathroom and sanitary ware, kitchen equipment and home decorations. Since its establishment in 1995, the company has successfully pursued its 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.

As of October 2011, HMPRO operated 44 stores, with 19 located in Greater Bangkok and 25 upcountry. The company’s stores have a total sales area of approximately 290,000 square meters (sq.m.) and retail space for rent of 81,702 sq.m. Through its continual expansion, HMPRO has established a strong footprint in the modern home improvement retailing industry nationwide. The expansion plans over the next few years will focus on the major provinces of Thailand and in major cities of neighboring countries. In 2011, HMPRO opened four stores outside Greater Bangkok.

TRIS Rating said, HMPRO’s total sales increased from Bt20,329 million in 2009 to Bt24,073 million in 2010. For the first nine months of 2011, sales continued to rise, climbing to Bt20,672 million, a 19.54% increase from the same period of 2010. The sales growth for the first nine months of 2011 was due to new store openings, operational improvements, and dynamic changes in the product mix to serve customer preferences. The gross profit margin increased from 25.01% in 2010 to 25.53% for the first nine months of 2011, partly due to higher contributions from house-brand products. The proportion of private label products continued to increase, rising from 15.97% of total sales in 2010 to 17.90% for the first nine months of 2011.

HMPRO’s financial position has strengthened. Funds from operations (FFO) increased from Bt2,046 million in 2009 to Bt2,644 million in 2010 and to Bt2,241 million for the first nine months of 2011, supported by strong sales growth and improved profitability. Liquidity continues to be strong, due to efficient cash management. Total debt increased from Bt2,742 million in 2010 to Bt3,642 million as of September 2011 as the company borrowed more to finance the construction of new stores and renovate existing stores. However, the FFO to total debt ratio remained strong at 69.51% in 2010 and 47.23% (non-annualized) for the first nine months of 2011.

Due to the recent heavy flood in central Thailand, HMPRO’s distribution center (DC) and eight stores were temporarily closed. Its DC, located in Wang Noi district, Ayudhya province, has been shut down since 12 October 2011. The building and some of the inventory has been flooded and the damage is expected to be mostly covered by HMPRO’s industry-all- risk insurance policy. Across all the company’s stores, there has not been any damage caused by the flood. HMPRO’s DC has been moved to Chonburi province to support store operations. The flood will hurt HMPRO’s performance during the flooding period, due to logistical problems and the shortage of flood prevention items. However, in the near term, demand for house cleaning and repair materials will rise after the flood level starts to recede. This boost will help support HMPRO’s operations in the coming months, said TRIS Rating. -- End

Company Rating: Upgraded to A+ from A Issue Rating: HMPRO11NA: Bt630 million senior debentures due 2011 Upgraded to A+ from A Rating Outlook: Stable TRIS Rating Co., Ltd./www.trisrating.com Contact: [email protected], Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2011, 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.