Parkson Holdings Bhd
(Feb 15, 65.5 sen)
Maintain neutral with an unchanged target price (TP) of 72 sen: Parkson Holdings’ (PHB) Southeast Asia arm, Parkson Retail Asia (PRA) reported a second quarter of 2017 (2QFY17) net loss of S$2.2 million (RM6.9 million), while cumulative first half of FY17 (1HFY17) net loss was S$7.4 million compared to a core net profit of S$6.4 million for 1HFY16 (after stripping out exceptional items including a gain on partial disposal of its stake in Parkson Hanoi). 

PHB’s top-line grew by 7.4% year-on-year (y-o-y) in 2QFY17, contributing to a 4.2% y-o-y growth for 1HFY17 to S$204.5 million. Core net loss was mainly attributed to higher operating expenses (+11.9% y-o-y) and staff costs (+17.1% y-o-y). Going forward, we expect rising costs to remain a challenge in the near term, along with costs for new stores and new businesses in their initial stages of operations. Its top-line will be supported by new stores’ and new business ventures’ contributions, although translation into healthier margins will not be as soon. We retain our “neutral” call on Parkson, and keep our TP unchanged at 72 sen, premised on 14 times our forecast FY17 earnings per share.

PRA’s sales mix improved as 1HFY17 direct sales made up 22.5% of total sales, which were higher compared with 19.4% in 1HFY16. In terms of merchandise types, the fashion and apparel segment and cosmetic and accessories segment were slightly higher at 82.4% of total sales, compared with 82.2% contribution in 1HFY16. Though small, we view this positively as these two segments contribute higher margins to PRA.

Malaysia segment’s same-store sales growth (SSSG) for 2QFY17 was higher at +4.2% compared to -7.3% in 2QFY17. Cumulatively, 1HFY17 SSSG also showed positive improvement to -0.8% from -11.2% in 1HFY16. Malaysia’s increase in SSSG was attributed to increased promotions across stores. 

Vietnam posted a decline in SSSG at -11.3% for 2QFY17, while 1HFY17 SSSG was -10.9%, which indicates a drop from 1HFY16’s -2.0%. Stiff competition remains a challenge in the Vietnam market, and another non-performing store in Vietnam was closed down this quarter. 

The Indonesia segment saw a decline in SSSG at -2.2% for the quarter, attributed to disturbances to operations caused by political demonstrations. In turn, 1HFY17 SSSG was impacted at -7.7% compared to 1HFY16’s +5.5%. 

For Myanmar, both 2QFY17 and overall 1HFY17 SSSG worsened to -29.5% and -28.9% respectively. On its store status, the store at FMI Centre will be closed by 1Q of calendar year 2017, while a location for replacement store has been secure, and is scheduled to open later this financial year. — PublicInvest Research, Feb 15