KGI Recommends “BUY” on DOHOME-GLOBAL-HMPRO on the Back of Solid Sales Demand

KGI Securities (Thailand) (KGI) launched 2Q21 earnings preview of three homeware and building materials retail stocks, including DOHOME, GLOBAL and HMPRO with an Outperform rating for all 3 stocks.

 

Dohome Public Company Limited (DOHOME) is estimated to report record high earnings in 2Q21 of 554 million baht (+280% YoY,+2% QoQ) on the back of solid sales and profitability expansion. This would put its 1H21 earnings at 1.1 billion baht (+240% YoY), accounting for 59% of KGI full-year forecast.

KGI maintains a rating of Outperform with an end-2022 target price of 34.00 baht based on PER 38.0x (+1.5 S.D historical average between GLOBAL and HMPRO, expecting DOHOME to report 2Q21 sales of 6.1 billion baht (+33% YoY, +0.2% QoQ), marking an all-time high that would put 1H21 sales at 12.2 billion baht (+33% YoY). SSSG is expected to be robust at 30% (vs at 22.5% in 1Q21, +0.4% in 2Q20, and 12% for the 2021 assumption) thanks to low base effect and high steel price. 

KGI forecast DOHOME’s 2Q21 gross margin to improve to 22.0% (+7.1ppts  YoY, +0.4ppts QoQ) propelled by: i) marketing strategy, ii) house brand strategy, iii) high steel price, iv) better product mix from store format, and v) effective negotiations with suppliers. This would put its 1H21 gross margin at 21.9% (+6.7ppts YoY) versus KGI’s 2021 assumption at 21.4%.

 

Siam Global House Public Company Limited (GLOBAL) is foreseen to announce 2Q21 earnings of 894 million baht (+76% YoY, 7% QoQ), putting its 1H21 earnings at 1.9 billion baht (+66% YoY), accounting for 63% of KGI’s full-year forecast. Growth YoY would be from the low base last year, while the decline QoQ would be due to less benefit from rising steel price.

KGI expects solid earnings growth of 44% in 2021, maintaining 2021-2022 earnings forecasts as i) front-end load pattern on its earnings, and ii) less benefit to profitability from steel price, which KGI have taken into account in the forecast. Thus, KGI maintains a rating of Outperform on GLOBAL with an end-2022 target price of 27.00 baht based on PER 38.0x (+1.5 S.D historical average between GLOBAL and its peer HMPRO).

 

Meanwhile, KGI anticipates Home Product Center Public Company Limited (HMPRO) to  report 2Q21 earnings of 1.4 billion baht (+44% YoY, 0.3% QoQ), putting 1H21 earnings at 2.7 billion baht (+23%  YoY), accounting for 48% of KGI full-year forecast. Growth YoY would be from low base effect on temporary store closures in 2Q20, while the decline QoQ would be from the local COVID-19 outbreak.

KGI maintains a rating of Outperform with an end-2022 target price of 17.80 baht based on unchanged PER 36.0x (+1.0 S.D historical average between GLOBAL and HMPRO), forecasting HMPRO to achieve 2Q21 sales of 15.3 billion baht (+10% YoY, +1.3% QoQ), putting its 1H21 sales at 30.3 billion baht (+7% YoY). 

Even though HMPRO had very high SSSG in April (~50)60%), it would be partially offset by the local COVID-19 outbreak, especially in Bangkok, and high base in May-June 2020 on pent up demand after easing of lockdown. As a result, SSSG should drop in May-June 2021, putting 2Q21 SSSG at 8% (vs ) 17% in 2Q20, +0.6% in 1Q21, and 4% for the KGI 2021 assumption.