Home Product Center Public: Home Depot of Thailand/Asia – Valuation AnalysisVW Staff
Home Product Center (MV $3bn): Home Depot of Thailand/Asia by Koon Boon Kee
Home Product Center Public Co Ltd (BKK:HMPRO) is Thailand and Southeast Asia’s largest retailer of home improvement products and services. It has 66 stores of over 450,000 sqm, with each store ranging in size from 6,000 to over 10,000 sqm. HMPRO was established on Jun 1995 in a JV between Land & Houses (SET: LH TB, MV $3.4bn) and American International Assurance, with the first store opened in Rangsit, Bangkok, in Sep 1996. Land & Houses (LH) group has a 50% stake in HMPRO. LH is the leading property developer and home builder in Thailand and its controlling owner is Anant Asavabhokhin. HMPRO has the #1 market share at 40% in the modern trade format in Thailand’s home improvement market and an overall 16% market share. HMPRO was listed on the Stock Exchange of Thailand (SET) on Oct 2001.
What Makes It a Wide-Moat Business?
Home Product Center Public Co Ltd (BKK:HMPRO) is one of the few home improvement retailers in the world which is able to achieve a negative cash conversion cycle (CCC) at -39 days for resilient, recurring and sustainable operating cashflow to enable the expansion of its store network while keeping a healthy balance sheet.
HMPRO is a pioneer in proactively creating awareness and demand in the minds of consumers that upgrading your home can be fun and in incremental affordable steps. Its “Take Care of Home Daily” branding has resulted in HMPRO as the “first on customers’ mind”, or what Charlie Munger elucidated as the “psychological wide-moat” advantage. 80% of HMPRO’s sales are generated from customers looking for home improvement and renovation ideas and solutions while around 20% is from new home buyers. Growth is supported by HMPRO’s proven ability to identify and cater to dynamic changes in customer preferences.
Home Product Center Public Co Ltd (BKK:HMPRO)’s comprehensive pre and aftersales service creates brand loyalty and sustains long-term sales. HMPRO’s merchandizing management is tailored to the peculiarities of customer preferences in each area to drive same store sales growth with creative customization by store, location, season and events. HMPRO’s management also closely monitor the sales and shelf duration of each product and only the best sellers and potential winners stay on the shelves to not only make its shelves look fresh and attractive, but improves inventory turnover, asset turnover and shortens the cash cycle, enabling freed-up funds and cashflow to be used elsewhere, such as judicious capital allocation in capex investment to add on the its store network for the multiplier effect. HMPRO’s key strategy to expand its profit margin is to increase its higher-margin house brands and product-mix management. Over 16% of its FY13 sales are contributed by house brands (3% in FY05). Gross profit/sqm has improved because of purchasing scale behind more stores and volume with its long-term partnership and bargaining power with suppliers and partners. HMPRO’s EBITDA/sqm of $400/sqm was higher than Home Depot until The Home Depot, Inc. (NYSE:HD) experienced a rebound last year to $500/sqm.
Home Product Center Public Co Ltd (BKK:HMPRO)’s resilient sales are supported by its unrivalled network of diverse locations throughout the country. We have noted that when HMPRO doubled its upcountry stores from 5 to 11 in FY06, many were skeptical about the market absorption capacity outside of Greater Bangkok where all its smaller rivals are concentrated. HMPRO’s bold vision and successful “Blue Ocean” execution has created a powerful wide-moat advantage that will last for many years to come.
Genesis of the Idea – and Why It’s Featured This Month
Home Product Center Public Co Ltd (BKK:HMPRO) share price has corrected 20-25% in the last six to 12 months due to concerns over initial startup losses in its expansion plans into Malaysia (and Southeast Asia) and with the new Mega Home store format. The correction is an opportunity to accumulate when the market is fixated on short-term results.
Potential launch of LH Property Fund in 2HFY14. The SET has already approved the listing. HMPRO will be able to utilize the cashflow to finance its expansion plans.
Home Product Center: Share Price Performance 2001-2014
Market Statistics and Financial Summary
See full Home Product Center Public: Home Depot of Thailand/Asia in PDF format here.