Worst is over for Parkson as prospects improve from outlets
KUCHING: Parkson Holdings Bhd’s ( Parkson) prospects is on an upward trend as the group’s strategy continues to improve its earnings performance going forward.
Kenanga Investment Bank Bhd’s research arm (Kenanga Research) in a recent report, noted that the group’s first 12 months of 2017 (12M17) core loss after tax, amortisation, and minority interest (LATAMI) came in at RM179.2 million compared to the core loss of RM152.6 million in 12M16.
“However, we believe the worst is over for Parkson and expect its financial year 2018 ( FY18) to start on a clean slate following a kitchen sinking exercise and swift improvement in China’s operations.
“Specifically, this quarter marks the second successive quarter of improvement in operating profit in China, highlighting that efforts including closures of underperforming stores and rationalisation measure have reduced
However, we believe the worst is over for Parkson and expect its financial year 2018 (FY18) to start on a clean slate following a kitchen sinking exercise and swift improvement in China’s operations.
same- store’s operating expenses and bearing fruit,” the research arm opined.
On a quarter- on- quarter (q- oq) basis, it noted that Parkson’s 4Q17 revenue fell eight per cent, no thanks to Vietnam (down 14 per cent).
However, it pointed out that key markets registered positive samestore-sales growth (SSSG) including China (2.4 per cent compared with minus 2.2 per cent in 1Q17), Malaysia (14 per cent compared with minus 1.4 per cent in 1Q17) and Indonesia (11 per cent compared with minus 18.2 per cent in 1Q17).
“Malaysia and Indonesia SSSG benefitted from Hari Raya festivities following the shift in festive calendar.
“The weakness in Vietnam continued due to competitive pressure. More importantly, 4Q17 China operations continued to show improvement registering second quarterly consecutive improvement due to positive SSSG growth, closures of underperforming stores and rationalisation measure, which had reduced same store’s operating expenses.
“Specifically, 53 per cent- owned Parkson China’s (FYE December) 1H17 recorded a core net profit 18,1 million renmnibi (RM11 million),” Kenanga Research said.
Year to date ( YTD), it noted that 12M17 revenue rose two per cent mitigated by narrowing negative SSSG in China (minus one per cent compared with minus 10 per cent in 12M16) due to its transformational strategies undertaken, which are bearing fruits, including aligning with the evolving retail markets and closures of underperforming stores.
“This brings 12MFY17 China operating loss has narrowed considerably to RM42 million from RM91 million in 12MFY16,” it pointed out.
Overall, Kenanga Research maintained an ‘outperform’ call on the stock.
It said, “We like Parkson because its strategy of optimising its retail format and expanding its product and services offerings is paying off, it is minimising stores losses via optimising store effectiveness and efficiency, which are bearing fruits, and 2Q17 China operating profit is showing encouraging signs of improvement.”
On its prospects, Kenanga Research noted that the group is focusing on delivering its transformational strategies closely aligning with the evolving retail markets, which include enriching its retail format and expanding its product and services offerings, optimising store effectiveness and efficiency, and enhancing cross platform experience for its customers.
“Specifically, the first Parkson Newcore Citymall was officially opened in January 2016 in Shanghai, which offers value-for-money products in a vibrant, energetic and innovative shopping environment. Sales of this Korean-themed outlet increased visibly in 2016 compared to the year before.
“In Southeast Asia, operating environments in the Southeast Asian region are anticipated to remain challenging due to the fragile consumer sentiment. The group will exercise vigilance in pursuing its strategies to transform Parkson into a life-style concept retail business,” it added.
Kenanga Research