TRIS Rating Co., Ltd. has upgraded the company rating of Home Product Center PLC (HMPRO) and the ratings of its existing debentures to “A” from “A-” with “stable” outlook. At the same time, TRIS Rating has assigned the rating to HMPRO’s proposed issue of up to Bt1,000 million in senior debentures at “A”. The upgrades reflect HMPRO’s strengthened base in the home improvement market, its improved operating and financial performance due to continuous improvements in its supply chain, and the ability to maintain healthy cash flow despite a slowdown in the residential property market and the overall economy. The ratings also take into consideration the company’s leading position among home improvement retailers in Thailand, and well-accepted brand name. A deterioration of consumer confidence due to a weakening economic climate and an uncertain political situation remain rating concerns.
The “stable” outlook reflects the expectation that HMPRO will maintain its leading position among modern home improvement retailers. The company is expected to maintain strong liquidity and an acceptable leverage level as it expands. A slowdown in the Thai economy has lowered consumer spending for new housing units. However, demand for renovation and repair of existing homes is expected to partly mitigate the lower demand for new homes.
TRIS Rating reported that HMPRO is Thailand’s leading modern home improvement retailer, operating under the “HomePro” brand name. As of September 2008, HMPRO had 33 stores, with 17 located in the Greater Bangkok and 16 upcountry. The company’s total sales area was 221,000 square meters (sq.m.), up by 8% from December 2007. Each store offers 30,000-60,000 stock-keeping units (SKU) of home-related products: home improvement products; bathroom and sanitary ware; kitchen, home appliances and audio visual products; electrical and lighting products; and home decorations.
TRIS Rating said, HMPRO has successfully expanded over the past 10 years, opening two to three new stores per year. A shift in consumer preferences towards modern retail outlets has fuelled its expansion, as HMPRO’s stores have become more popular than traditional stores. With the expansion strategy, HMPRO has benefited from economies of scale, which generate cost savings. The proportion of private label and imported products rose from 3.1% of total sales in 2005 to 8.3% in 2007 and to 10.6% for the first six months of 2008. This rise pushed the gross margin, during a weak market, from 21.6% in 2005 to 23% in 2007 and to 23.5% for the first six months of 2008.
For the first six months of 2008, HMPRO’s sales continued to rise to Bt8,668 million, a 14.6% increase from the same period in 2007. Same-store sales grew by 4.1% for the first six months of 2008, after experiencing a 4.6% drop in 2007. The recovery in same-store sales growth came from operational improvements to minimize lost sales and an on-going expansion in provincial areas during 2006-2008 which cut the cannibalization rate among the stores in the Greater Bangkok. HMPRO aims to open more stores in provincial areas to serve customers in new markets. In 2009, the company plans to open three to four new stores, all upcountry. The product mix has also been adjusted to match changing customer preferences and customer affordability during the current slowdown in consumer spending.
HMPRO’s financial position remains healthy. The total debt to capitalization ratio improved from 51.48% in 2006 to 47.49% in 2007 and to 45.97% as of June 2008, partly due to lower capital expenditures. Liquidity continues to be strong, due to efficient cash management. Fund from operations (FFO) increased from Bt1,183 million in 2006 to Bt1,459 million in 2007 and to Bt783 million for the first six months of 2008, due mainly to store expansion and increased income from higher rental rates. The ratio of FFO to total debt remained strong at 29.04% in 2006, 37.32% in 2007, and 21.01% (non-annualized) for the first six months of 2008, said TRIS Rating. -- End
Company Rating: Upgraded to A from A- Issue Ratings: HPRO093A: Bt500 million senior debentures due 2009 Upgraded to A from A- HMPRO115A: Bt500 million senior debentures due 2011 Upgraded to A from A- Up to Bt1,000 million senior debentures due 2011 A Rating Outlook: Stable
Copyright 2008, 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 in