TRIS Rating Assigns "A+/Stable" Rating to Senior Debt Worth Up to Bt4,000 Million of “HMPRO”

TRIS Rating has assigned a rating of “A+” to the proposed issue of up to Bt4,000 million in senior debentures of Home Product Center PLC (HMPRO). At the same time, TRIS Rating has affirmed the company rating of HMPRO at “A+”. The outlook remains “stable”. The rating reflects the company’s leading position in the home improvement retailing industry in Thailand, strong operating performance, and healthy financial position. The rating also takes into consideration the increasing competition among modern home improvement retailers. The “stable” outlook reflects the expectation that HMPRO will be able to maintain its strong operating performance and acceptable leverage level, while pursuing its growth strategy.

HMPRO is Thailand’s leading home improvement retailer, operating under the “HomePro” brand name. Currently, its major shareholders are Land & Houses PLC (LH) (30.22%) and Quality Houses PLC (QH) (19.78%). The company offers a wide range of home-related products and services, such as home improvement products, bathroom and sanitary ware, kitchen equipment, and home decorations. Since 2010, the company has successfully pursued its growth strategy by opening an average of six new stores every year. A shift in consumer preferences towards modern retail outlets has fuelled its expansion.

As of July 2013, HMPRO owned and operated 57 stores, with 20 located in Greater Bangkok and 37 upcountry. For the first seven months of 2013, HMPRO opened four stores upcountry. The company’s stores have a total sales area of approximately 400,700 square meters (sq.m.) and retail space for rent of 102,400 sq.m. Through its continual expansion, HMPRO has established a strong footprint in the modern home improvement retailing industry nationwide. HMPRO’s expansion plans over the next few years will focus on provincial areas.

HMPRO recently set up a new subsidiary, Mega Home Center Co., Ltd. with registered capital of Bt500 million. Mega Home stores are designed to be the center for wholesale and retail sales of construction materials, system and home finishing and home improvement materials, home furnishings, and electrical appliances. Mega Home stores will serve the needs of contractors, project owners, and retail shops. HMPRO plans to open the first Mega Home store in Rangsit, Pathum Thani province and the second in Mae-sot, Tak province. Both stores are planned to open in the last quarter of 2013. Each store will have space of 12,000 sq.m.— 18,000 sq.m.

HMPRO’s total sales rose from Bt28,363 million in 2011 to Bt34,542 million in 2012. Sales continued to increase in the first half of 2013, climbing to Bt19,174 million, a 17.1% increase from the same period of 2012. The sales growth for the first half of 2013 was due to operational improvements, dynamic changes in the product mix to serve customer preferences, and new store openings. Same-store sales grew by 3.1% in the first six months of 2013. The gross profit margin increased from 26.0% in 2012 to 26.6% in the first half of 2013, partly due to higher contributions from house-brand products. The proportion of private label products increased from 19.5% of total sales in 2012 to 20.3% for the first half of 2013.

HMPRO’s financial position has been solid. Funds from operations (FFO) continued to increase, rising from Bt2,644 million in 2010 to Bt3,993 million in 2012 and to Bt2,259 million for the first six months of 2013. Liquidity remained healthy, due to efficient cash management. Despite total debt increased from Bt3,012 million in December 2011 to Bt5,969 million as of June 2013. The FFO to total debt ratio remained strong at 58.8% in 2012 and 31.8% (non-annualized) for the first six months of 2013.

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