PARKSON (5657) - Parkson - Surrounding Challenges

Parkson (PHB) registered 1HFY16 revenue of RM1.97bn, up 7.7% YoY. At the bottomline level however, Parkson recorded 2QFY16 net loss of RM31.4m while cumulative 1HFY16 net profit was RM31.8m. Excluding one-off gain from partial disposal of Parkson Hanoi, which amounted to RM136.3m, core net loss for 1HFY16 stood at RM104.5m. The core net loss is primarily due to higher operating costs, specifically staff and rental costs. Among the challenges Parkson continues to face include managing its new business ventures and new stores’ costs, especially in its China operations as it currently works on transforming into lifestyle mall concept. On the macro front, we remain wary on the lookout for China’s consumption pattern change, on the back of the recent rate cuts. We keep our Neutral view on Parkson with TP of RM0.88, premised on 14x multiple to our FY17F EPS.

Southeast Asia. Malaysia continues to face subdued consumer sentiment (Consumer Sentiment Index for 4QCY15: 63.8points) after GST implementation and concerns on weakening of the Ringgit. Subsequently, Malaysia’s 1HFY16 PBT was down by 53.4% YoY. Indonesia’s performance was positive with higher 1HFY16 revenue (+17.1% YoY) on the back of +6% Same Store Sales Growth (SSSG) supported by strong consumer sentiment (Consumer Confidence Index for 4QCY15: 103.5points). Vietnam’s performance is mixed, as the southern stores registered positive SSSG for 2QFY16, but offset by negative SSSG in the northern stores. Myanmar reported a decline in SSSG due to weaker consumer sentiment in relation to recent general election.
   
China. Revenue was up 11.9% for 1HFY16, although this is partly due to the stronger Yuan resulting in better translation effects into Ringgit. Growth remains subdued, as weak consumer sentiment and increasing competition continue to be major hurdle for Parkson in the region. Promotional costs, apart from rental and staff costs, also affected China’s performance as reflected in the pre-tax loss of RM59.7m for 1HFY16. We expect to see its ongoing transformation and development efforts bearing fruit in the medium term however.

Source: PublicInvest Research - 25 Feb 2016

PARKSON (5657) - Parkson - Surrounding Challenges
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