3Q24 net profit was in line at Bt1.44bn, -6% YoY and -11% QoQ, down YoY from a Bt42mn FX loss, with a wider gross margin balancing weaker sales and higher SG&A/sales. We cut our 2024F by 3% to factor in the 3Q24 FX loss. In Oct to date, we see slight positive signs of improving SSS, turning up to grow in the low to mid single digits YoY in the MegaHome format and falling more slowly in the low to mid single digits YoY in the HomePro format (vs -3.9% YoY and -5.8% YoY in 3Q24). With better SSS, continued store expansion and wider margin, we expect 4Q24F earnings to grow YoY and QoQ. HMPRO is trading at 20x 24PE (below -2S.D. at 22x its 10-year PE), with attractive dividend yield at 3.9%. We maintain Outperform with a new mid-2025 DCF TP (WACC at 7.0% and LT growth rate at 2.5%) of B13 (from Bt13.5).
HMPRO - 3Q24: In line with market estimates
3Q24 net profit Bt1.44bn, -6% YoY and -11% QoQ, in line with market estimates. Taking out the Bt42mn FX loss in 3Q24 (vs FX gain of Bt27mn in 3Q23 and Bt9mn in 2Q24) gives a core profit of Bt1.48bn, flat YoY (but -8% QoQ) on a wider gross margin that offset lower sales from SSS contraction and higher SG&A/sales.
3Q24 highlights. Revenue fell 3% YoY to Bt16bn as SSS contraction outpaced store expansion. We estimate a fall in SSS in the HomePro format (81% of sales) of 5.8% YoY and 3.9% YoY in the MegaHome format (17% of sales) in Thailand, hurt by: 1) caution on spending amid economic pressure; 2) the above-average rainfall during Thailand’s rainy season and widespread flooding in the northern and upper central regions; 3) the adverse impact from ongoing road construction in front of the HomePro Ratchaprueuk store (sliced 1% YoY off SSS). We estimate SSS in the HomePro format in Malaysia (2% of sales) fell 1.4% YoY. In 3Q24, it opened three new stores - HomePro Nong Khai, HomePro Rayong, and Mega Home Rayong - ending 3Q24 with 133 stores (+3% YoY and +2% QoQ). Gross margin widened 30bps YoY to 27.1% from a higher proportion of sales of high-margin private brand products, mostly at MegaHome but partly at HomePro. EBIT margin narrowed 20bps YoY to 12.3% from a Bt42mn FX loss, a lower drop in recurring SG&A expense (-1% YoY, with lower utilities and outsourced costs outpacing higher expenses from new stores) than in sales (-3% YoY), and stable rental & other income (+8% YoY in rental & service income for malls in tourist destinations offset by -8% YoY in other income from lower promotional activities by vendors).
Earnings revision and outlook. We trimmed our 2024F by 3% to incorporate the higher SG&A expenses from the Bt42mn FX loss in 3Q24. In October to date, we believe SSS has contracted in the low to mid single digits YoY at HomePro (less than the -5.8% YoY in 3Q24) but has turned up to grow in low to mid single digits YoY at MegaHome (vs -3.9% YoY in 3Q24), reflecting higher demand for renovations and repair in flood-affected areas, better purchasing power after the Bt10,000 cash handout to 14.5mn people in late September and greater government budget disbursement off last year’s low base (+157% YoY in October to date). Given an expected improvement in SSS (off normal base from store-specific hits from road repair in late 4Q24F), the planned opening of two new HomePro stores and a continued widening in margin, we expect 4Q24F earnings to grow YoY and QoQ.
Key risks are changes in purchasing power and new government policies. Key ESG risks are energy & waste management, sustainable products (E) and product quality management, labor practices and data privacy (S).