ILM: Leading Home Furnisher Expands Gross Margin Further

We change our recommendation on ILM to HOLD from BUY as the price has performed strongly since our last report. We base our recommendation on a target price of Bt15.50, implying an upside of 10% from the current price. We derive our target price from a DCF-based valuation using a WACC of 6.8% and a terminal growth rate of 2%.

Investment thesis:

• Customized furniture brand Younique captures modern customer demand
• Improved inventory management leads to significant cost cut
• Overseas expansion provide future growth opportunities

Interim: Revenue was down by 18% YoY in 3Q20; however, the company managed to reduce its production costs, and the gross profit was only down 10% YoY. The 9M20 revenue constituted 73% of our 2020E forecast and 77% of our gross profit forecast.

Risks: Slowdown in Thai consumer spending, increased competition puts pressure on margins, worsening inventory management, disruptions in supply chain.