• Expect 4Q17F profit to come in at Bt1.5bn (+14% yoy, +27% qoq), driven by 4% SSSG on low-base effect and higher GPM from larger contribution of house-brands
• International expansion is attractive, larger than expected house-brand sales an upside risk
• OUTPERFORM, TP Bt14; positive SSSG momentum to continue at least until 2Q18F given low-base effect

Delivering another good results

Improving domestic sentiment following the end of the official mourning period, low-base effect, and shopping tax break should continue to bolster SSSG in 4Q17, which we estimate at 3% (vs 2.8% in 3Q17 and -2% in 4Q16). HMPRO continued to expand with the opening of one HomePro store in Johor Bahru to take its network to six in Malaysia (81 stores in Thailand). These should translate into Bt16.5bn sales (+11% yoy, +9% qoq) in 4Q17. Larger sales mix of house-brand products to 19.0% in 4Q17 from 18.7% in FY16 should nudge up GPM by 0.2ppt yoy to 26.4%. HMPRO did not incur large expenses in the quarter, and SG&A costs should rise 9% yoy and qoq to Bt3.7bn in line with sales growth. Overall, we expect HMPRO to post Bt1.5bn net profit in 4Q17F, up 14% yoy and 27% qoq, large jump qoq due to seasonal effect.

Still prefer retailers of discretionary products with larger exposure in Bangkok where consumption is resilient

HMPRO has not announced its official expansion plan for FY18, but we expect it to be similar to last year’s. This means it would open smaller-size format HomePro stores. We will stick to our assumptions of (i) two HomePro stores in Thailand, (ii) two in Malaysia, and (iii) one Mega Home store, pending the analyst briefing in February. For retailers of discretionary products, we still prefer those with large exposure in Bangkok given resilient consumption and stronger purchasing power than upcountry because of volatile farm incomes. We also prefer retailers with international expansion plans as that could be another growth driver in the future, instead of relying only on margin enhancement and domestic expansion.

OUTPERFORM, Bt14 TP is based on DCF valuation (7.1% WACC, 3% LTG) and implies 33x FY18F PE

Its international expansion plans and profitable Malaysia operation are attractive, while larger than expected house-brand contribution would be an upside risk. We expect positive SSSG momentum at least until 2Q18 due to the low-base effect, although the share price has partly priced that in. We will keep our recommendation and TP pending the analyst briefing in February.