Parkson
opened its first store at Sungei Wang Plaza in 1987. It is an
Asian-based departmental store operator with an extensive network
spanning across Malaysia, China, Vietnam, Indonesia, and Myanmar.
Source: Bloomberg
Looking
through Parkson's share price performance over the years, some
investors might be wondering, is the company currently undervalued? Its
share price has fallen significantly to RM 0.86 as of June 6, 2016.
Is Parkson a bargain? or possibly a value trap? In this article, I will
provide a few key points for you to consider before acquiring Parkson's
shares.
Profits Under Pressure
Despite
increasing revenue in the past 3 years, Parkson's profitability has
been facing significant stress and finally dipped into the red in the
latest quarter. High operating costs and stiff competitions,
particularly from e-commerce, were the main contributing factors.
The
decreasing profitability, of course, was very obvious to many
investors, especially to those practising value investing. However, why
are there still people buying into Parkson? The very reason being its
high net cash position.
From
the above table, Parkson's net cash position has shrunk from 48% of
market cap to just 28% as of FY15. Interestingly, a veteran value
investor in Malaysia mentioned that Parkson was attractive due to its
strong balance sheet. Indeed, the company's balance sheet was and is
still strong with cash surplus.
However,
one needs to exercise caution when it comes to this situation. Earnings
is the key driver to higher share price so, try to ask
yourself, can the cash be used to generate more profits in the future?
If not, I don't see the reason why its not paid out as dividends to its
shareholders.
Net Debt ... Finally
True
enough, Parkson's net cash position has become net debt in the latest
quarterly result. After doing some ground works, I found out that
some of Parkson's stores are not doing well as compared to its peers.
Customer flows were extremely bad in a few local malls and deterioration
in fundamentals have turned its advantage into disadvantage.
Clearly,
the business is facing high pressure from e-commerce, lack
of competitive advantages, incurring high operational costs and other
forms of competitions. Personally, I don't think it's worthwhile to
invest despite of its high net cash position. If this weakness persist, I
foresee that its net debt position will continue to take charge and
Parkson's borrowings will eventually starts to build up.
In
conclusion, I think it's kind of hard for Parkson to turnaround if the
management continues what they do currently with no changes to
its business model. If the results have been disappointing for many
years, with the same management team in charge, how likely is it that
they can do something different to turnaround? This is a question worth
giving a thought. I may be wrong, so please transact at your own risks
and exercise your judgement before investing.
PARKSON (5657) - Why Parkson Could Be A Value Trap
http://www.valueinvestingstock.com/#!Why-Parkson-Could-Be-A-Value-Trap/cour/575578e90cf2b2ec517e9043
