PARKSON (5657) - Stiff competition in the region for Parkson
Parkson Holdings Bhd
(Feb 22, 69.5 sen)
Maintain neutral with a target price of 75 sen:
Parkson Holdings Bhd reported its second quarter ended Dec 31, 2016 (2QFY17) revenue of RM1.05 billion (+0.8% year-on-year [y-o-y]), while cumulative first half of fi nancial year 2017 (1HFY17) revenue was RM1.9 billion (-2.4% y-o-y), in line with our expectations.
Its 2QFY17 net profit was RM72.7 million, bringing its 1HFY17 net profit to RM10.1 million (-68.3% y-o-y), cushioned by a one-off gain on disposal (RM802.3 million), though weighed down by other one-offs including impairment losses on intangible assets (RM309 million) and other receivables (RM4.2 million).
Excluding the exceptional items, Parkson would have recorded a pretax loss of RM152.1 million. The loss was mainly attributed to higher operating expenses (+1.4% y-o-y) and lower finance income (-42% y-o-y).
We believe it becomes more challenging for Parkson’s turnaround initiatives to generate positive results in the near term due to escalating costs. Hence, we cut our FY17 to FY19 earnings forecasts, and change our valuation method to sum-of-parts-(SOP) based to better reflect current challenges faced by the group.
The group’s China operations’ 1HFY17 revenue declined by 4.5%, though same-store sales growth rebounded to +1.4% in 2QFY17 from -7% in 1QFY17. The segment reported an operating loss of RM85.2 million for 1HFY17, due to lower revenue, coupled with high costs from its new business ventures and new stores in this transformation period.
In the near term, we expect the market landscape to remain challenging amid stiff competition with-in the region, though we do look forward to improvement from its transformation eff orts in the longer term.
For 1HFY17, Parkson saw its revenue increase in Malaysia (+8.2% y-o-y) and Indonesia (3.7% y-o-y), while Vietnam and Myanmar’s sales declined by 8.4% y-o-y, mainly due to a challenging retail environment and stiff competition in Vietnam.
At the operating level, only Malaysia recorded a 1HFY17 operating profit of RM1.9 million (-93.6% y-o-y), while other regions reported losses. Losses incurred by new stores during the gestation period continued to affect overall operations, while Indonesian operations were also affected by less festive buying days due to the shift in Hari Raya celebration and disturbances caused by demonstrations in Jakarta.
We expect the segment’s performance to remain subdued, as margins continue to be squeezed by existing and new businesses’ costs. We have changed our valuation method to SOP-based as we believe it better reflects the group’s current challenges, especially in China.
Our 0.5 times price-to-book value (P/BV) multiple for Parkson Retail Group Ltd is based on the recent years’ trailing P/BV pattern, and our expectation for a recovery within two to four years. — PublicInvest Research, Feb 22
SOURCE: [THE EDGE FINANCIAL DAILY] http://tefd.theedgemarkets.com/2017/TEP/20170223eyjn0j.pdf
