This article first appeared in The Edge Financial Daily on May 22, 2017 - May 28, 2017

Parkson Holdings Bhd
(May 19, 63 sen)
Maintain neutral with a target price (TP) of 75 sen: Parkson Retail Group (PRG), Parkson Holdings Bhd’s (PHB) China operations reported its first quarter financial year 2017 (1QFY17) net earnings of 1.1 million yuan, an encouraging improvement compared to 1QFY16’s core net loss of 17.1 million yuan (RM690,400). Revenue grew marginally by 0.7% year-on-year (y-o-y) to 1.14 billion yuan. The positive net earnings were attributed to both higher rental income and reduction of total operating expenses due to cost management efforts. We are pleased with the signs of PRG’s new business model working out and resulting in turnaround, thus we keep our earnings estimates and retain our “neutral” call. Though our sum of parts-based TP of 75 sen implies potential upside, we remain cautiously optimistic at this juncture as its primary retail operation was still sluggish for this quarter but offset by gaining higher rental income from Qingdao Lion Mall contributions. In the longer term, we look forward for new stores and business ventures to strengthen PRG’s financials.

PRG reported a decline of 5.6% y-o-y for its 1QFY17 gross sales proceeds, mainly due to stiff competition and impact of 2016 store closures. Same-store sales growth too declined by 2.2% for this quarter. Despite that, operating profit more than doubled y-o-y to 31.2 million yuan (from 14.9 million yuan in 1QFY16), due to higher rental income contributed by Qingdao Lion Mall (+0.9%), decrease in total operating expenses (-7.4% at group level and -4.7% on a same-store basis) due to cost control measures. The group also closed one underperforming store in 1QFY17, in line with its focus to improve its store operation efficiency.

We continue to note positive changes in PRG’s merchandise sales mix. 1QFY17 direct sales made up 15.4% of total merchandise sales (1QFY16: 12.9%, 1QFY15: 10.9%). On product mix, contribution from the fashion and apparel and cosmetic and accessories segments were consistent at 91.1% for 1QFY17 and 1QFY16. — PublicInvest Research, May 19