This article first appeared in The Edge Financial Daily, on February 5, 2016.
Parkson Holdings Bhd
(Feb 4, 95 sen)
Maintain outperform with a target price of RM1.48: Parkson Holdings Bhd’s (PHB) 67.6%-owned subsidiary, Parkson Retail Asia Ltd (PRA), registered a core net profit of S$2.6 million (RM7.64 million) for the second quarter of financial year 2016 (2QFY16), down 71% year-on-year (y-o-y).
Cumulatively, its first half of FY16 (1HFY16) core net profit was S$6.36 million, down 62.8% y-o-y, after stripping off gain on a partial stake disposal in Parkson Hanoi (S$46 million).
Although seasonality effects from end-year holidays and festivities should result in stronger sales for Parkson, headwinds in consumer sentiment, especially in the Malaysian market, continued to affect performance.
Hence, PRA’s weak 1HFY16 numbers alone are expected to affect PHB’s overall 1HFY16 performance negatively by about 20%, ceteris paribus. If China records yet another subdued quarter, adding it up with the previous quarter’s loss would mean a hit on PHB’s overall 1HFY16 results.
We keep our estimates under close review, pending the announcement of results by PHB’s China arm, as we look out for changes in China’s consumption pattern.
PRA recorded a 12% y-o-y decline in 2QFY16 to S$103.5 million, due to weaker same-store sales growth (SSSG) in Malaysian (down 7.3%), Vietnam (down 0.4%) and Myanmar (down 5.2%) operations.
Only Indonesia showed a positive SSSG of 1.4% as consumer sentiment remained strong in the region. Operating expenses reduced by 8.5% y-o-y and 9.5% y-o-y for 2QFY16 and 1HFY16. Depreciation and amortisation expenses increased y-o-y by 3% and 3.9% for 2QFY16 and 1HFY16 respectively, primarily due to an inclusion of new stores’ depreciation costs.
We view the change in merchandise sales mix as encouraging, with an improving contribution of direct sales as opposed to concessionaire sales.
For 1HFY16, direct sales and concessionaire sales represent 19.4% and 80.6%, from 19.1% and 80.9% in 1HFY15 respectively.
On the type of products, contributions from the fashion and apparel segment, and the cosmetic and accessories segment increased to 82.2% for 1HFY16 (1HFY15: 81.1%).
We view these changes as positive for Parkson, as these segments command better margins. — PublicInvest Research, Feb 4