TRIS Rating Co., Ltd. has upgraded the company rating of Home Product Center PLC (HMPRO) to "BBB+" from "BBB", which reflects HMPRO's position as the leader in the modern home improvement retail sector in Thailand under "HomePro" brand name, its ability to maintain high same-store sales growth while pursuing its store expansion, and its improved operating efficiencies. The rating also takes into consideration the low profitability nature of retail business and concerns about the negative impact of rising interest rates and oil prices on consumer spending. The "stable" outlook reflects the expectation that HMPRO will maintain its leading position in the modern home improvement industry as well as its strong operating performance. The company is expected both to improve operating efficiencies and to maintain its leverage at an acceptable level while pursuing store expansion.
TRIS Rating reported that HMPRO is the leader in the modern home improvement market under the "HomePro" brand name, which serves as a one-stop shopping home center, established in 1995 by the Land & Houses group. Currently, HMPRO's major shareholders are Land & Houses PLC (29.99%), Quality Houses PLC (21.34%), and American International Assurance Co., Ltd. (5.18%). The company caters primarily to buy-it-yourself (BIY) homeowner customers by offering more than 60,000 stock-keeping units of construction materials, home decorations, tools and hardware, electrical and lighting products, garden tools, furniture, and home entertainment products. By offering a wide range of products and a convenient store format, HMPRO differentiates itself from other traditional home improvement retailers. As of September 2004, HMPRO operates 17 stores with a total of 105,300 square meters (sq.m.) of sales area and expects to open one additional store in Hadyai in October 2004. The company has focused on store expansion and has planned to operate 30 stores by the year 2007. HMPRO's total sales have grown dramatically around 50% annually during the last four years. For the first half of 2004, sales increased to Bt4,599 million, a 59% increase from the same period in 2003. This high growth rate is the result of both new store openings and increases in same-store sales. Same-store sales growth was high at approximately 22% for the first half of 2004, partly due to the favorable housing market in 2003 and its broad selection of merchandise. However, the rate of growth is expected to be lower when the market is more mature and more new stores are opened.
TRIS Rating said in 2005, HMPRO plans to introduce a new format called HomePro Village, which will include a HomePro store, smaller scale discount stores, an entertainment complex, and a small plaza. This new format is expected to contribute recurring rental income to HMPRO. The company has already secured three locations, Bangna, Huahin, and Petchkasem-Nongkam, for new store openings in 2005. Due to the favorable trends in the real estate industry in recent years and the changes in consumer preferences, many operators in the modern home improvement market, which mainly refers to the large and convenient home improvement centers, have focused on store expansion and renovation. However, HMPRO continues to be more than twice the size, both in number of stores and total sales area, of its nearest direct competitor, "homeWorks" and its sales in 2003 were more than six times the level of "homeWorks".
HMPRO's lease-adjusted operating income before depreciation and amortization as a percentage of sales increased slightly from 6.51% in 2002 to 7.51% in 2003 and to 7.81% for the first half of 2004. However, this level is considered low compared to other industries. HMPRO's lease-adjusted funds from operations to total debt ratio increased from 23.18% in 2002 to 29.58% in 2003 and to 14.09% (non-annualized) in the first half of 2004. The company's capital expenditures are expected to remain high for the next several years, due to its store expansion and operation efficiency improvement plan. Its management expects to continue the company's current financial policy of maintaining its target financial debt to equity ratio at less than two times.
TRIS Rating said that though related to the real estate market, home improvement centers typically have lower cyclicality compared to the housing market, because repair and remodeling work on existing homes could offset a slowdown in new home purchases. Increasing interest rates and oil prices could gradually affect consumer spending. - End
Home Product Center PLC (HMPRO) Company Rating: Upgraded to BBB+ from BBB Rating Outlook: Stable