This article first appeared in The Edge Financial Daily, on August 19, 2016.

Parkson Holdings Bhd
(Aug 18, 78.5 sen)
Maintain neutral with a target price of 88 sen: Parkson Holdings Bhd’s China arm, Parkson Retail Group Ltd (PRG), reported its second-quarter net loss of 106.4 million yuan (RM64.08 million), making it a total of 124.2 million yuan net loss for the first half of the year. The disappointing performance was due to stiff competition and weak consumer sentiment, which resulted in slower sales of 967.8 million yuan and 2.1 billion yuan for the second quarter and the first half respectively. First-half operating expenses showed a marginal increase of 0.3% year-on-year, primarily due to higher staff costs, but were offset mainly by a decrease in rental expenses as a one-off provision of arbitral award of 140.9 million yuan was included in the first half of the previous year.

PRG’s sales mix continued to improve as first-half direct sales made up 12.8% of total sales, higher than the 10.8% recorded in the same period in the previous year. In terms of merchandise mix, the fashion and apparel segment and cosmetic and accessories segment, two segments with better margins, contributed 91.2% in the first half, compared with 90.9% in the same period in the previous year.

During the first half of the year, PRG opened Parkson Newcore City Mall and Qingdao Lion Mall, which reflected the group’s focus and commitment to transform into a lifestyle concept retailer. Parkson Newcore City Mall is a Korean-themed mall, and PRG plans to continue exploring possible collaboration with E-Land Group to roll out more city malls in China. The Qingdao Lion Mall, on the other hand, marked PRG’s entry into the shopping mall market segment. Offering more than 200 brands, it places Parkson’s department store, supermarket, fashion labels, and food and beverage stores under one roof. Apart from that, PRG is also leveraging digital platforms to enrich customer experience, which include launching new mobile shopping application Parkson Plaza in June and improving its partnership with mobile payment operators. Developments to come up next are Hogan Bakery, from Taiwan, which will be opened in one of Shanghai’s tourist landmarks, while Parkson supermarket, which will be PRG’s first stand-alone supermarket, is scheduled to open in the second half of the year in Shanghai.

Among plans put in place to improve overall operational and financial performances include store network reviews, empowering human resources and enhancing cost management. PRG closed down two underperforming stores in the first half of the year, and is continuously reviewing department store opening plans going forward, such as balancing allocation of resources in improving existing stores and developing new retail formats. PRG also acknowledges human resources as a factor, resulting in increased investment in talents and trainings. PRG has also rolled out a cost-rationalisation exercise, which primarily focuses on lease agreement renegotiations, especially for underperforming stores. — PublicInvest Research, Aug 18