TRIS Rating Affirms Company & Senior Debt Ratings and Outlook of “HMPRO” at “A+/Stable”

TRIS Rating has affirmed the company and issue ratings of Home Product Center PLC (HMPRO) at “A+” with “stable” outlook. The ratings reflect the company’s leading position in the home improvement retailing industry in Thailand, strong operating performance, and proven record in managing home improvement centers. The ratings also take into consideration the increasing competition among modern home improvement retailers and weakening domestic consumption. 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. The company’s new store format is expected to capture a wider group of customers and enhance the company’s operating performance.

HMPRO is Thailand’s leading home improvement retailer, operating under the “HomePro” brand name. Currently, its major shareholders are Land & Houses PLC (LH; 30.23%) and Quality Houses PLC (QH; 19.77%). 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 seven new stores per year, compared with an average of three new stores per year in earlier period. A shift in consumer preferences towards modern retail outlets has fuelled its expansion.

At the end of November 2013, HMPRO owned and operated 63 stores, with 21 stores located in Greater Bangkok and 42 stores upcountry, with 11 new stores opened in 2013. The company’s stores have a total sales area of approximately 445,700 square meters (sq.m.) Through its continued 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’s total sales rose from Bt28,363 million in 2011 to Bt34,542 million in 2012. Sales continued to increase in the first nine months of 2013, climbing to Bt29,129 million, a 17.3% increase from the same period of 2012. The gross profit margin increased from 26.0% in 2012 to 26.8% in the first nine months of 2013, partly due to higher contributions from house-brand products and dynamic changes in the product mix to serve customer preferences.

Funds from operations (FFO) of HMPRO continued to increase, rising from Bt2,644 million in 2010 to Bt3,993 million in 2012 and to Bt3,430 million for the first nine months of 2013. Liquidity remained healthy, due to efficient cash management. Due to the aggressive investments it has made to build new stores and inventory requirements for each store, HMPRO’s debt increased from Bt5,523 million in December 2012 to Bt10,168 million as of September 2013. The total debt to capitalization ratio was 49.1% at the end of the third quarter of 2013, from 30%-40% during 2009 through 2012. However, HMPRO’s financial leverage is expected to improve following its plan to lease some of its retail space in “Market Village Hua Hin” to a property fund worth about Bt4,000 million in 2014.

HMPRO introduced a new store model via its new subsidiary, Mega Home Center Co., Ltd. Mega Home store will serve the needs of contractors, construction project owners, resellers, and end-users. The stores are designed to be large-scale warehouse style. Each store will offer a wide range of home-related products and household products with store area of 12,000-20,000 sq.m.

The first Mega Home store in Rangsit, Pathum Thani province opened in October 2013 and the second in Mae-sot, Tak province opened in November 2013. The company plans to open two new branches in early 2014.

To pursue its growth strategy for “HMPRO” and “Mega Home” models, HMPRO will require capital expenditures of approximately Bt5,000-Bt6,000 million per year during 2014-2016. The company has a policy to maintain its debt to equity ratio below 1.75 times and plans to fund its capital expenditures by using a mix of funding sources: operating cash flow, new borrowings, and the sale of assets to property funds.

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