This article first appeared in The Edge Financial Daily, on November 26, 2015.

Parkson Holdings Bhd
(Nov 25, RM1.06)
Maintain hold call with an unchanged target price of 95 sen: We keep our earnings forecasts unchanged as we believe that Parkson Holdings will fare better in the coming quarters. 

Notably, while the group’s new food and beverage segment should help to partially mitigate the weaker retail performance, we do not foresee a significant contribution in the near term. 

While the stock is trading at an attractive forward price-earnings ratio (PER) of 12.6 times (below its five-year historical average PER of 16 times), we do not expect the share price to rerate given the tougher retailing environment. 

However, we maintain our “hold” rating as we believe that the group’s weak growth prospects are priced in.

Parkson concluded its first quarter ended Sept 30, 2015 (1QFY16) results with a reported net profit of RM63.3 million. After stripping off the non-recurring items, the group registered a core net loss of RM28.9 million, which was partly cushioned by the lower tax expenses. 

All in, the results were in-line with our expectation but below consensus. 

We note that the group’s 1QFY16 is traditionally the weaker quarter, and we expect the year-end and seasonal festivities to perk up earnings in the Asean and China markets in 2QFY16 and 3QFY16.

Parkson’s China operations remain a drag as operating profits turned into a net loss of RM32.6 million. This was mostly attributed to China’s weak same-store sales growth (SSSG) of negative 6.3% year-on-year (y-o-y) as a result of weaker consumer spending and intense retail competition, as well as higher operating costs which clipped profitability.

Meanwhile, the group’s Malaysian market continues to struggle with 1QFY16’s operating profit dropping 59% y-o-y on the back of weaker consumer sentiment and weaker SSSG (fell 15% y-o-y). 

The Myanmar and Vietnam markets registered an operating loss of RM3 million on the back of a negative SSSG and fiercer competition in the retail space. 

The group’s sole bright spot, Indonesia, recorded an admirable SSSG of 9.6% y-o-y growth due to the country’s resilient economy and consumer spending. — AffinHwang Investment Bank Bhd, Nov 25