This article first appeared in The Edge Malaysia Weekly on November 13, 2023 - November 19, 2023

HAS there been a makeover at Parkson Holdings Bhd? After years of neglect, the department store operator is seeing its share price rise.

In just a year, Parkson’s share price had nearly tripled from 11.5 sen on Nov 10, 2022, to 30.5 sen at last Friday’s close. This values the company at RM350.4 million.

Some market observers have described the stock as “cheap”, given that the current share price of 30.5 sen is only a fraction of its net assets per share of RM1.28. But is the valuation cheap enough to convince investors that Parkson is worth another look?

The upward trend in Parkson’s share price can be traced back to May, around the time when it announced its first-quarter results — or rather, its first quarterly net profit after six consecutive quarters of losses.

The share price gained further after the group released a second quarter of net profit for the period ended June, providing a glimmer of hope that the department store operator’s dismal financial performance in previous years may be a thing of the past.

For the cumulative six months ended June 30, Parkson’s earnings stood at RM40.02 million on revenue of RM1.67 billion.

Bursa Malaysia-listed Parkson is a holding company that owns 54.3% of Hong Kong-listed Parkson Retail Group Ltd, the operator of 43 department stores in China. It also owns 68% of Singapore-listed Parkson Retail Asia Ltd, which runs its Southeast Asian retail operations in Malaysia with 36 stores and whose retail operations in Vietnam have ceased after its Vietnamese subsidiary filed for voluntary bankruptcy proceedings on April 28.

Parkson used to have a bigger presence in Southeast Asia, operating in Indonesia and Myanmar as well. There were also plans for a Cambodian retail outlet. However, similar to its operations in Vietnam, its Myanmar operations have closed while it has ceased to have control over the subsidiary in Indonesia.

As for its planned Cambodian operations, these did not materialise after the group found itself embroiled in a legal tussle with its developer when the premises were not handed over to the group.

Parkson, a darling of the investment community in the early 2000s, has been running at a loss in the last seven financial years starting from FY2016 with a net loss of RM95.74 million. At the time, the company’s financial year end was June 30, but it recently changed it to Dec 31.

Over the last seven financial years, its annual net loss has hovered between RM95 million and RM436 million. The worst was in FY2020 when its net loss plunged to RM436.35 million when the Covid-19 lockdowns forced retailers like Parkson to temporarily cease operations. It suffered a huge blow as the bulk of its department stores are located in China.

China contributed about 70% to the group’s revenue in 2022 at RM2.1 billion while Malaysia made up about 25% at RM754 million. The remaining 5% was derived from the operation of credit services, food and beverage businesses, and investment holdings.

Although China contributed the bulk of group revenue in 2022, Malaysia contributed a higher portion to segment profit at RM209.13 million compared with China’s RM27.06 million.

Nevertheless, for the cumulative six months ended June 30, its operations in China have seen tremendous improvement, with revenue increasing 7% to RM1.23 billion from a year earlier while segment profit improved more than five times to RM171.26 million.

“The recovery in shopper traffic at our retail stores following the full lifting of Covid-19-related prevention and control measures since end-2022, coupled with the additional rental income from an investment property in Beijing this quarter, have enabled Parkson China to post an encouraging sales performance,” it said when announcing its financial results.

However, the group remains cautious about its prospects for the third quarter as it is expecting low traffic flow in the absence of major festivities.

“The group continues to stay focused on increasing the stores’ productivity and implementing cost improvement strategies, besides continuing to diversify the income sources to fully seize opportunities and promote long-term sustainable development of its businesses,” it said.

When contacted by The Edge for further comment on its plans and the current situation of its operations, Parkson says it is unable to respond to the queries raised as it is in the closed period at this juncture.

On its balance sheet, total borrowings stood at RM1.78 billion while its deposits, cash and bank balances amounted to RM1.43 billion. This put Parkson’s net gearing at 0.24 times as at June 30.

Notably, the group has been moving to an asset-light strategy as it has been disposing of its properties over the years. When comparing its list of properties in its 2016 annual report against its 2022 annual report, one finds that the group had three fewer properties last year.

It had listed RM48.36 million worth of “non-current assets classified as held for sale” on its balance sheet as at June 30, which relates to the carrying amount of part of the leasehold land located in Melaka. It is also in the midst of disposing of properties in Qingdao City in China’s Shandong province, measuring 76,013 sq m at a consideration price of RMB280 million (RM181 million).

Interestingly, back in 2015, the group had considered a shift from its asset-light model to being an integrated mega-mall owner and manager with a vision of having at least 10 self-managed malls in 10 years. However, that dream was short-lived as it appears to be reverting to the asset-light model.

Parkson’s largest shareholder is its chairman and managing director, Tan Sri William Cheng, who is also chairman of Lion Group. He controls almost 55% of the company, with 24.97% being a direct stake.

Only time will tell whether Parkson can sustain its turnaround.  

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.