This article first appeared in The Edge Financial Daily on February 12, 2018

Parkson Holdings Bhd
(Feb 9, 48 sen)
Maintain neutral with an unchanged target price (TP) of 75 sen: Parkson Retail Asia (PRA) registered a second quarter of financial year 2018 (2QFY18) net loss of S$3.1 million (RM9.23 million), wider than 2QFY17’s net loss of S$2.2 million. Its cumulative first half of FY18 (1HFY18) net loss was thus larger at S$16 million compared with a S$7.4 million core net loss in 1HFY17. The subdued performance was primarily due to weak sales across its geographical markets, on top of costs of new stores and new business ventures which are still in the gestation period. Its 2QFY18 top line reported a marginal 0.9% year-on-year (y-o-y) growth to S$112.1 million, while 1HFY18 revenue decreased by 0.6% y-o-y due to the previous quarter’s lower sales. The Southeast Asia operations will likely remain a challenge in the medium term and hamper China’s recovery at the group level.

Continued improvement is seen in PRA’s sales mix, with direct sales making up 26% of 1HFY18’s total sales, higher than 23% in 1HFY17. The encouragingly higher proportion of direct sales was due to the group’s ongoing efforts in introducing various in-house apparel brands. In terms of merchandise types, the fashion and apparel segment, and cosmetic and accessories segment were consistent at 82% in 1HFY18 and 1HFY17. We view the consistency positively as these are the higher-margin segments for PRA. 

The Malaysian segment’s same-store sales growth (SSSG) for 2QFY18 was negative at -1.7% compared to +4.2% in 2QFY17. This was attributed to stiff competition among retail players in year-end sales during the holiday and festive seasons. Vietnam posted SSSG of -2.3% for 2QFY18, which narrowed from 2QFY17’s SSSG of -11.3%, primarily due to intensive promotional activities and fading of novelty effect of international players’ entrance into the scene. For Indonesia, SSSG remained negative at -2.1% in 2QFY18 (2QFY17: -2.2%), due to the downsizing of a store in Jakarta (February 2017), coupled with disruption from the Bali volcano eruption in December 2017. Excluding the affected stores, SSSG would be mildly positive at 0.8%. In terms of store network, PRA opened two new stores in Malaysia, while it closed down four stores, two in Malaysia and two in Indonesia during the quarter.

Our TP of 75 sen is based on a price-to-book valuation of Parkson Retail Group (PRG) business assets and the price-earnings ratio of PRA. Based on our rough estimation of Parkson Holdings Bhd’s book value (BV) from PRG and PRA’s individual BVs combined, at a 50% discount it would already equal to around 80 sen to 90 sen, higher than the current share price level and our TP. While we see value in the group, operational challenges will keep a lid on share price performances for the foreseeable future. — PublicInvest Research, Feb 9