Parkson’s 1QFY13 earnings were below consensus and our expectations. Group net profit came in lower by 34.7% y-o-y as the solid performance from Malaysia and Indonesia were pulled down by the weaker numbers at its China and Vietnam operations. Meanwhile, margins softened due to higher start-up losses from its new stores and slower SSS. After revisiting our FY13 and FY14 numbers, we revise lower our FV to RM4.13. Downgrade to NEUTRAL.
China not looking so good. Sales rose by 5.7% y-o-y, mainly driven by the group’s Malaysian and Indonesian retail business in tandem with stronger consumer spending during the Hair Raya festive season. The retailing division posted a topline growth of 4.7% y-o-y, boosted by respectable same-store-sales (SSS) growth in its stores in Malaysia (+5.7%), and Indonesia (+8.9%). However, the China and Vietnam units saw weaker SSS, which slipped 1% and 6.3% respectively due to the considerably weaker operating environment. The group’s first local self-owned and managed retail mall, KL Festival City, continued to generate decent revenue, contributing RM7.8m to the group’s property and investment holding division in 1Q. The mall has a high occupancy rate of 99%. Parkson’s 1Q earnings, on the other hand, slid 34.7% y-o-y despite a slight increase in revenue, largely due to: i) lower earnings (-20.2% y-o-y) from Parkson Retail Group (PRG) Hong Kong as a result of higher initial losses from its new stores (RMB53.4m), and ii) higher rental and overheads. Management is targeting a FY13 SSS growth of 2% for China, 7%-9% for Malaysia, and 9%-10% for Vietnam and Indonesia.
Erosion in EBIT margin. Merchandise gross margin eased by 50bps to 19.7% y-o-y due to new stores and lower SSS from the group’s overall operations, while EBIT margin declined from 31% to 19.4%.
It’s payback time for Sri Lanka investment. The group plans to open more new stores in FY13, comprising: i) two in Malaysia, ii) two to three in Vietnam, iii) four to five in Indonesia, and iv) five to six in China. Meanwhile, its newly acquired Sri Lankan associate, Odel PLC, is starting to bear fruit. The 44.6%-owned associate contributed RM0.7m in profit to Parkson this quarter. Next year, the group will be opening its first Parkson Department Store in Yangon via a joint venture with two property players in Myanmar.
Downgrade to NEUTRAL. Given the weaker-than-expected showing from PRG, we are slashing our FY13 and FY14 numbers by 24.7% and 28.2% y-o-y respectively. Downgrade to NEUTRAL, with a lower RM4.13 FV, based on sum-of-parts (SOP).
China not looking so good. Sales rose by 5.7% y-o-y, mainly driven by the group’s Malaysian and Indonesian retail business in tandem with stronger consumer spending during the Hair Raya festive season. The retailing division posted a topline growth of 4.7% y-o-y, boosted by respectable same-store-sales (SSS) growth in its stores in Malaysia (+5.7%), and Indonesia (+8.9%). However, the China and Vietnam units saw weaker SSS, which slipped 1% and 6.3% respectively due to the considerably weaker operating environment. The group’s first local self-owned and managed retail mall, KL Festival City, continued to generate decent revenue, contributing RM7.8m to the group’s property and investment holding division in 1Q. The mall has a high occupancy rate of 99%. Parkson’s 1Q earnings, on the other hand, slid 34.7% y-o-y despite a slight increase in revenue, largely due to: i) lower earnings (-20.2% y-o-y) from Parkson Retail Group (PRG) Hong Kong as a result of higher initial losses from its new stores (RMB53.4m), and ii) higher rental and overheads. Management is targeting a FY13 SSS growth of 2% for China, 7%-9% for Malaysia, and 9%-10% for Vietnam and Indonesia.
Erosion in EBIT margin. Merchandise gross margin eased by 50bps to 19.7% y-o-y due to new stores and lower SSS from the group’s overall operations, while EBIT margin declined from 31% to 19.4%.
It’s payback time for Sri Lanka investment. The group plans to open more new stores in FY13, comprising: i) two in Malaysia, ii) two to three in Vietnam, iii) four to five in Indonesia, and iv) five to six in China. Meanwhile, its newly acquired Sri Lankan associate, Odel PLC, is starting to bear fruit. The 44.6%-owned associate contributed RM0.7m in profit to Parkson this quarter. Next year, the group will be opening its first Parkson Department Store in Yangon via a joint venture with two property players in Myanmar.
Downgrade to NEUTRAL. Given the weaker-than-expected showing from PRG, we are slashing our FY13 and FY14 numbers by 24.7% and 28.2% y-o-y respectively. Downgrade to NEUTRAL, with a lower RM4.13 FV, based on sum-of-parts (SOP).
Source: OSK
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