HMPRO's business model is cash-based, and the company maintains its liquidity due to the conservative management. The company aims to become a leader in home improvement retailing of construction, decoration and home improvement products along with providing complete services such as One Stop Shopping to achieve highest customer satisfaction. To achieve the goal, the Company has tried to reduce operating costs and improve service quality, and has developed the information technology system related to the retail business so that it is up-to-date and efficient.
And, in July 2006, the Company expanded the Distribution Center which creates more space to support future branch growth. In addition to the regular format of "HomePro", the Company has also implemented its proactive strategy by opening the center for wholesale and retail sales under the name. The company plans to open further new outlets with the next target of 80 stores within 2016 both in Bangkok and other countries.
At the end of 2013, the Company had a total of 64 HomePro stores and 2 Mega Home stores nationwide. Currently, the Company has two main businesses which are home improvement retail and space leasing service for retail tenant stores. For the leased space business, the Company has arranged its leased space in several branches to service the stores of the retail tenants.
At the same time, the Company has also developed the format of its branches called "HomePro Village", which operates the business in the form of a full-service shopping center.
Subsidiaries Business
For home improvement retail, the Company has provided various types of related services by providing consultation and useful information for customers to make the decision to choose the products that most closely match the objectives of use. In addition, HomePro also provides technician and contractor selection and placement service, product exchange service, as well as demonstration and workshop organization for customers, etc. Within the project, in addition to the HomePro branch, there are shopping mall areas in which most tenants consist of supermarkets, restaurants, banks, bookstores and IT stores, etc.
The company currently operates 2 branches namely Rangsit, Pathumthani Province and Mea-sod, Tak Province.
Industry Overview and Competitive Analysis
- Investment and Purchasing Power Jeopardized
- The upcoming AEC will benefit Thailand real estate and construction sector
- Industry Analysis: Property Market Slowdown
- Competitive Analysis: Highly competitive in domestic market The home improvement industry, which covers everything from hard
Geographically, Thailand is the center of Indochina which stands out from its rivals in the eyes of investors. Also, the property market in some areas is now saturated with oversupply after mushrooming projects started while the growth momentum was still felt in the market. Established groups in this segment, which include Siam Global House, HomeWorks, Do Home and Boonthavorn are aggressively expanding their reach and supporting sustainable growth in provincial centres.
The company has long focused on meeting demand in the provinces, with only 21 of its stores in greater Bangkok and 43 stores in provinces. In the 4th quarter of 2013, the company executed its proactive strategy by opening 2 “Mega Home” stores and in 2014, HomePro expanded its 1st store in Malaysia. In the domestic market, HMPRO is the leader in home improvement retail, offering a full range of full services.
In the past few years, the real estate market seems to be constantly growing, providing a high demand for home improvement products, including the transition to the urban community was growth in both Bangkok and Upcountry. Although the home improvement retail market conditions are facing increased competition from new entrants, this competition is concentrated only in the mid-to-low customer segment. Whereby the branches of other home improvement brands are only concentrated in some areas such as the North East.
Additionally, the aggregate demand for home improvement products is expected to grow in the long run due to constant movement of residents from rural to urban areas and the change in lifestyle towards urban living behavior. Thai Watsadu & HomeWorks is a building materials and home improvement retail business unit of the Central Retail Corporation Group of Companies (CRC). It operates as a warehouse store to sell building materials, home improvement products and equipment.
Siam Global House is engaged in the sale of products in the form of a warehouse store. Siam Global House has grown from its original base in the northeastern province of Roi Et in 1997 to have a strong domestic presence. The store welcomed 1 million customers in its first month alone, and the group plans to open a further two stores in the capital within the next five years.
Investment Summary
Cyclical stock depending on economics trend and real estate industry
When it opened in November 2011, it was surprised to see that the high-end goods were more popular than the lower segments, which are usually the best sellers in other countries. With the changing lifestyle of the consumer in the urban area, value-based home furnishing and personalization has become popular among Thais. The IKEA concept starts with the idea of offering a range of home furnishing products that are affordable for many people.
Continue to show healthy growth for same store sales growth
HMPRO does not discriminate between minority and majority shareholders and rightfully maintains equal treatment for both as owners of the company. The number of independent directors constitutes more than one-third of the Board of Directors and will comply with the Securities and Exchange Act. The company believes that commitment to the principles of good corporate governance and ethics is the right way to run its business and build trust between shareholders and the company.
Valuation
Discounted Cash Flow Model: Free Cash Flow to Firm (“FCFF”) This method is suitable for HMPRO as the company has the long term and relatively
HMPRO also pursues a policy of disclosing information that is transparent, complete, reliable and timely, through various channels that are easily accessible. The five-year projected cash flow comes from increasing sales, which are derived from the store expansion and the continuously developed private label product. However, since this is a retail business that depends on the economic condition, the growth rate of the company's historical record is therefore too high for FCFF calculation.
The weighted average cost of capital is calculated using the CAPM model, with a risk-free 10-year government bond yield of 3.62% as of September 1, 2014, an expected risk premium of 7.40%, adjusted by the sovereign default spread (1.6 % ) with a relative average emerging market volatility of 1.5 plus 5% for the mature market premium and an adjusted beta of 1.2479, reflecting a weighted average cost of capital of 9.24%. The raw data were obtained from Reuters and Bloomberg, except for the risk premium, which we obtained from Professor Aswath Damodaran's research paper, because the risk premium from Bloomberg was too high and Professor Aswath Damodaran's research was more robust. As of December 2013, there were 64 HomePro stores (33% in Greater Bangkok, 67% outside) and two Mega Home stores (one in Greater Bangkok, one upstate).
In 2014, HomePro plans to open eight HomePro stores, two Mega Home stores and its first HomePro in Malaysia. The company normally raises funds through its unsecured bond, which had confirmed a rate of A+ from TRIS, credit rating company.
Value of the Company using other method
Additional Downside Possibility
The consumer confidence index and private investment slowed amid many negative pressures on domestic consumption, including concerns about rising costs of living, rising household debt, slowdown in public investment in infrastructure and increased tensions over the political situation since end of the year. Thus, due to the ongoing political unrest in the first five months of 2014, the Thai economy experienced a contraction in the first half of 2014. In the second half, the Thai economy is expected to grow at a faster pace, supported by the improved economy . confidence and the return of public administration and budget disbursement to the normal process.
However, the economy is likely to operate below its full potential due to constraints on investment growth caused by low capacity utilization and slow progress in the approval of investment stimulus in the first half of 2014.
Investment Risk
Political instability
Risk from major shareholders held paid-up capital more than 25%
Capital outflow is projected in the near term
Operational Risk
DATA
Company’s Information
- Business Structure
- Income Statement
- Statement of Financial Position
- Statement of Cash Flow
- Key Financial Ratio Table 2.4 Key Financial Ratio
- Current Construction Plan
- Free Cash Flow to Firm Model and Assumption
- P/E Commerce
- Debenture Information
- Corporate Governance and Corporate Responsibility
Weight Average cost of capital: the WACC component is taken from Bloomberg data, with only the country risk premium, estimated according to the studies of Professor Aswath Damadoran1. We decided to use the equity risk premium based on Professor Aswath Damadoran's estimate because we believe that the market risk premium is 7.10%. However, Professor Aswath's assessment has much stronger mathematical evidence and in our view more valid.
As of June 30, 2014, there are 3 unsubordinated and unsecured debentures outstanding with a total value of Baht 6,300 million. Corporate governance of the Company has been classified as "Very Good" by the Organization for Economic Co-operation and Development's (OECD) principles of corporate governance - Thai Institute of Directors (IOD).
