Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily on December 10, 2018

KUALA LUMPUR: Last week, department store operator Parkson Holdings Bhd saw its Singapore-listed 67.96%-owned subsidiary Parkson Retail Asia Ltd (PRA) placed on the exchange’s watch list after triggering the minimum trading price (MTP) entry criteria.

The MTP is a continuing listing requirement that took effect from March 2, 2015 for all Singapore Exchange (SGX) Mainboard issuers, whereby they must maintain a minimum share price of S$0.20 (61 sen).

PRA shares have been trading below the SGX’s minimum requirement of S$0.20 since May 2016, closing at a record low of S$0.025 last Friday, bringing a market capitalisation of S$16.85 million. The company could face a delisting should it fail to exit the watchlist by Dec 4, 2021.

The options available to the company to exit the watch list include share consolidation, a transfer to the SGX Catalist board or a restructuring of its operations.

Should PRA’s parent Bursa Malaysia-listed Parkson Holdings decide to undertake a restructuring exercise, it would not be the first time the group has done so.

 

The birth of PRA

PRA came about after a restructuring exercise undertaken by Parkson Holdings in April 2011, when Parkson entered into a joint venture (JV) with PT Mitra Samaya, the majority shareholder of Indonesian Retailer PT Tozy Bintang Sentosa (TBS).

The JV was for the purpose of combining the Malaysian and Vietnamese retail businesses of Parkson Holdings with the Indonesian retail business of TBS under PRA.

This involved the acquisition of TBS subsidiary PT Tozy Sentosa — which operates Indonesian department stores under the Centro brand and a supermarket under the Kem Chicks brand — by PRA for US$12.8 million. The deal was completed in June 2011.

With the Indonesian retail operations parked under PRA, the next step taken by Parkson Holdings was to inject its Malaysian and Vietnamese retail businesses into PRA. Once that was done, the group proceeded to list its shares on SGX on Nov 3, 2011 at an initial public offering (IPO) price of S$0.94.

After the restructuring, Parkson Holdings became the investment holding company of both PRA and Hong Kong-listed Parkson Retail Group Ltd, which manages the group’s department stores in China. Its financing and moneylending services via Parkson Credit Holdings Sdn Bhd continued to be parked under Parkson.

Parkson Holdings said then that the intention of the listing was for PRA to gain direct access to capital markets for capital raising, and to provide the financial flexibility for the group to pursue its growth opportunities. It was also expected to raise the profile of the Parkson Asia Group in the regional retail industry, and unlock the value of Parkson’s investment in PRA.

At its last traded share price of S$0.025 sen, a 97% wipeout of its IPO price, it does not seem that much value has been unlocked in the past seven years for the Parkson group from PRA’s listing.

 

What went wrong in PRA?

With an extensive network of 66 department stores across cities in Malaysia, Vietnam, Indonesia and Myanmar as at June 30, 2018 and with a strong presence in three Southeast Asian growing economies, how did PRA end up in the predicament that it is in today?

PRA held much promise back then, with its share price appreciating by 41% in less than two years from its 2011 IPO to reach a high of S$1.33 on Feb 8, 2013.

Shortly after that PRA’s earnings slipped into the red for its financial year ended June 30, 2015 (FY15), with its first net loss since listing of S$34.69 million on the back of marginal year-on-year (y-o-y) decline in revenue to S$428.75 million. This was largely due to losses from its Vietnamese operations, coupled with the goods and services tax implemented in Malaysia on April 1, 2015 that hampered retail interest. PRA then returned into a penny stock, tumbling to S$0.26 on Dec 18, 2015.

The group managed to return to the black in FY16, with a net profit of S$30.18 million despite a 9.4% y-o-y decline in revenue to S$388.4 million. This was largely due to one-off gain on disposal of equity interest in its Vietnamese subsidiary. However, this did not do much for its share price, which continued to dwindle to S$0.11 on Dec 30, 2016.

PRA slipped back into the red in FY17, with a wider net loss this time of S$58.2 million, while revenue was up 6.2% to S$412.7 million. In 2017, it was its Indonesian operations that primarily eroded the group’s profit, as it recognised an impairment on goodwill following the underperformance of its Indonesian department stores, amid a challenging operating environment there.

For FY18, the group still remained in the red with a net loss of S$42.67 million, which it said was due to subdued retail interest in Malaysia as well as in Indonesia. Revenue grew marginally to S$413.5 million.

PRA also found itself in a net current liabilities position of S$70.9 million as of FY18, which it said was a result of the group’s investments in new stores and ventures which had not achieved optimal contribution yet. Its auditors also highlighted that this, coupled with its loss-making position, indicated a material uncertainty that may cast a significant doubt about PRA’s ability to continue as a going concern.

The group is currently without a chief financial officer after Chia Cang Yang resigned on Nov 4 after more than a year in the role. In the interim, its finance functions are being overseen by PRA chief executive officer (CEO) Michael Remsen.

Remsen, who was formerly the CEO and vice-president director of Indonesian retail group PT Matahari Department Store Tbk, was appointed PRA CEO in April 2017.

While it is still early to gauge what would be the Parkson group’s next plan for PRA, Kenanga Research wrote in a note last Wednesday that should Parkson Holdings seek to privatise PRA, it may have to fork out S$7.4 million for the remaining shares it does not own, assuming a share price of S$0.03.

PRA’s cash balance as of June 30, 2018 stood at S$40.9 million.

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