Parkson Credit still optimistic about motorcycle financing

This article first appeared in The Edge Financial Daily, on July 10, 2017.

Poh: The company is in the pipeline to introduce a variety of financing products and services in the near future. Photo by Sam Fong

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KUALA LUMPUR: The investing fraternity is getting disappointed with Parkson Holdings Bhd’s retail business, particularly its operations in China which was once perceived as a cash cow.

However, few may have noticed that the retail group has commenced its credit services business. And that the new operation is already churning good growth, although the contribution to Parkson Holdings’ bottom line is not significant as yet.

According to senior general manager Danny Poh Wan Chung, who is at the helm of Parkson Credit, with an initial paid-up capital of RM30 million from Parkson Holdings, Parkson Credit has breached the RM1 million mark for profit after tax (PAT) for the financial year ended June 30, 2016 (FY16).

“Personally, I have a very ambitious target for this company, in terms of profit. I'm quite satisfied [with the performance so far]. It is within my mark, and we are aiming to benchmark it with the industry in terms of profit margins against the industry best,” Poh told The Edge Financial Daily.

For FY16, the company achieved PAT of RM1.02 million compared with a net loss after tax of RM31,296 in FY15. Meanwhile, its revenue swelled close to 12 times to RM13.06 million compared with RM1.11 million a year ago.

“For FY17, we are expecting to achieve a high multiplied growth in both revenue and net profit,” said Poh, noting that the main driver for PAT growth is the economics of scale that Parkson Credit will enjoy as its business expands.

“Being fairly new [and for the immediate future], Parkson Credit is not contributing much in revenue to Parkson Holdings, however, we expect to be a significant profit-contributing company [to the group later]” Poh added.

In 2013, Parkson Holdings chairman Tan Sri William Cheng, who is also the managing director, came out with the idea of restarting Lion Group’s financial service business in the retail group.

Poh then set up this wholly-owned unit, Parkson Credit. Within one year, Poh had it up and running.

Motorcycle financing is the main area that Parkson Credit is focussing on currently. It generates about 95% of the company’s sales.

In view of the wide profit margin of over 20%, Poh reckons that Parkson Credit’s contribution will be more towards the group’s bottom line instead of revenue.

Commenting on non-performing loans (NPL), Poh said Parkson Credit’s bad debt recovery has improved last year compared with the initial year. However, he acknowledged that there is room for improvement as the company is still behind the industry’s best. With a NPL ratio of below 4%, Poh is expecting it to go down lower and to be comparable with the industry’s best of about 2.8%.

New motorcycle purchases dropped 14% after the introduction of the goods and services tax in 2015. Poh is expecting a single-digit drop this year as it did in 2016.

Poh said Parkson Credit was also formed to create synergy in order to support Parkson Holding’s current and future portfolio of consumer-focused business.

“Taking a look at other global retail industry players, notable organisations such as AEON and Wal-Mart are often associated with a credit financial services arm to supplement its retail business,” Poh said.

Given the rising cost of living and a weaker ringgit, which drives the demand for credit purchase, Poh said non-bank lenders are expected to continue to thrive in the near future bridging the gap of medium- and low-income eligible credit financing requirements.

“It is our intention to start out in the most competitive environment. By entering into an already competitive market, we are able to gauge capability to compete and thus gain competitive confidence in the market,” said Poh.

“With that, we are able to put our foothold in the market and establish ourselves as a key player in the industry in the near future. From there we can launch more financial services products in the near future,” Poh said.

Without relying heavily on marketing and promotions to drive sales, Poh said Parkson Credit is dependent on the recommendation from its motorcycle dealer network.

With the recent achievement of 100,000 applicants serving close to 540 dealer outlets, Parkson Credit is targeting to reach 1,000 dealer outlets by the end of 2019 and will be focusing on dealers within the capital states.

The company had obtained the moneylending licence early this year. “Hence, it is a matter of timing before we decide to roll it out into the market,” Poh said.

Poh added the company plans  to introduce a variety of financing products and services in the near future, which includes hire purchase, personal financing, insurance services, small and medium-sized enterprise financing and others.