20210726-Credit_Suisse-ASEAN_Living_A_primer_on_home_improvement_58页_1mb

Summary of ASEAN Home Improvement Sector

Core Content

The ASEAN home improvement sector is identified as a fast-growing retail category with significant potential for expansion. It is currently valued at approximately US$6.7 billion, and is considered underpenetrated compared to more developed markets. The sector is expected to deliver a five-year CAGR of ~9% until 2025, driven primarily by Indonesia (~13%) and the Philippines (~10%).

Main Trends and Drivers

• Demographic Factors:

  • A favorable demographic profile in Indonesia and the Philippines, with a high proportion of economically active individuals and a low proportion of those over 60 years, supports growth.
  • These countries are expected to benefit from a demographic dividend, leading to higher household consumption and economic growth.
  • The Philippines has an edge over Indonesia due to a lower median age and slightly faster population growth.

• GDP and Disposable Income:

  • Higher GDP per capita correlates with increased home improvement spending.
  • A disposable income per capita of ~US$3,000 marks the threshold where discretionary spending, including home improvement, begins to rise.
  • The Philippines is in a favorable position on the S-curve of consumer spending growth.

• Urbanization and Decentralization:

  • The COVID-19 pandemic has accelerated urban flight and decentralization, leading to more people living outside urban centers and thus increasing the need for home improvement.
  • Urban populations in ASEAN are projected to grow from 47% in 2014 to 65% in 2050, with over 525 million people expected to reside in urban areas by 2050.

• E-commerce Growth:

  • Online sales of home and garden products are expected to grow faster in ASEAN than in other Asian markets like Japan, due to a young population, growing middle class, and rising internet connectivity.
  • While same-store sales are expected to improve post-pandemic, the online share of retail sales is likely to remain higher than pre-pandemic levels.

• Structural Tailwinds:

  • Rising disposable incomes, urbanization, and e-commerce adoption are key structural trends expected to drive the sector forward.
  • Omni-channel platforms and online selling portals are being developed by ASEAN players to support growth and customer engagement.

Key Countries and Market Outlook

Top Picks and Investment Highlights

• MRDI (Malaysia): Strong growth and return profile.

• ACES (Indonesia): Strong growth and return profile.

• HOME (Philippines): Strong growth and return profile.

• HMPRO (Thailand): Significant omni-channel growth.

• DFI (Singapore): Strong presence in the market.

• Target Price Adjustments:

  • WLCON (Wilcon Depot Inc.): Target price raised from P22 to P24.
  • GLOBAL (Siam Global House PCL): Target price raised from Bt27 to Bt28.50.

Competitive Landscape and Valuations

• Home improvement is underpenetrated in ASEAN, with per capita spending significantly lower than in developed markets.
• Retail space per capita is also lower, indicating room for expansion.
• Peer valuations show a range of price-to-earnings (P/E) ratios and return on equity (ROE) percentages across the sector.

Conclusion

The ASEAN home improvement sector is poised for growth due to structural and demographic trends, including rising disposable incomes, urbanization, and e-commerce adoption. The key drivers for future growth include new store openings, same-store sales growth, and margin improvements. Companies such as MRDI, ACES, HOME, HMPRO, and DFI are highlighted as top picks, and their target prices have been adjusted to reflect improved growth prospects. The sector is expected to benefit from the post-pandemic recovery and the digital transformation of retail channels.