2Q23 net profit was Bt1.6bn, +7% YoY from better sales and rental & other income and +1% QoQ on seasonality, in line with the market. We expect 3Q23F earnings to grow YoY off sales and margin improvement and QoQ on seasonality. We maintain Outperform with an end-2023 DCF (WACC at 7% and LT growth rate at 2.5%) TP of B17.
2Q23 net profit was Bt1.6bn, +7% YoY and +1% QoQ, in line with market estimates. The YoY increase reflected better sales and rental & other income outpacing softer EBIT margin. The QoQ rise was seasonal.
Strong 2Q23 revenue. Revenue grew 9% YoY to Bt18bn on SSS growth and store expansion. We estimate SSS growth in the HomePro format at 5% YoY (vs -1.1% YoY in 2Q22 and 6.0% YoY in 1Q23), boosted by: 1) a rebound in domestic consumption in specific areas upon the resumption of economic activities and the recovery of tourism, 2) strong sales growth in electrical cooling appliances (air conditioners, fans and evaporative coolers) from higher-than-average temperatures, and 3) its new campaign “Old for New”, a trade in program allowing customers to trade in old products such as electrical appliances, water pumps, furniture, etc. for a discount on new purchases in a similar product category. In 2Q23, it opened three new Mega Home stores, in Nakhon Pathom, Chiang Mai, and Bangsaen, with one closure of a HomePro store, Lotus Bangkae, with plans to open a new store nearby in 3Q23. It had 122 stores at end-2Q23 (+7% YoY and +2% QoQ), consisting of 86 HomePro stores, 5 HomePro S stores, 24 MegaHome stores and 7 HomePro stores in Malaysia.
Slightly softer 2Q23 EBIT margin YoY.Gross margin widened 60bps YoY to 26.3% from a shift in product mix toward high margin products and higher volume discount for seasonal items received from vendors that offset more low-margin sales at the MegaHome format. SG&A/sales grew 90bps YoY to 19.5% from pre operating expenses related to opening new Mega Home stores, higher electricity and utilities costs and higher depreciation expenses. Rental & other income grew 14% YoY to Bt1.1bn. Rental & service income grew 15% YoY to Bt464mn on more rental income from leasable space at HomePro stores and Market Village, particularly in tourist areas. Other income rose 11% YoY to Bt650mn on more promotional activities with vendors. EBIT margin fell 10bps YoY to 12% as higher SG&A/sales outpaced a better gross margin and rental & other income.
Key risks are changes in purchasing power, an inflation-led rise in costs and higher interest rate, and new government policies.
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