Friday, August 23, 2013

Parkson - Expect future payoff from continued expansions in China

Parkson -
Price (16 Aug ‘13) RM3.67
Target Price RM4.00
Expect future payoff from continued expansions in China

INVESTMENT HIGHLIGHTS
Parkson Retail Group’s 1HFY13 gross sales proceeds and operating revenues were up 4.9%yoy and 2.0%yoy respectively.
The rise was attributable to six new store openings and the acquisition of four managed stores.
Nonetheless, operating and net profits fell -32.0%yoy and - 38.0%yoy respectively given that the incurrence of operating expenses relating to the new openings and store acquisitions.
Maintain NEUTRAL on PHB as the transient growth deceleration in China has been fully factored in.


Parkson Retail Group (PRG), a 51.2%-owned subsidiary of Parkson Holdings Berhad (PHB), released its 1HFY13 results on last Friday. Here are the key highlights:-
1HFY13 total gross sales proceeds up 4.9%yoy. PRG reported a 4.9%yoy increment in its 1HFY13 gross proceeds received or receivable (GSP) to RMB9.0b. The increment was attributable to the incorporation of contributions from (i) four new stores opened in FY12 and the two recently opened in 1HFY13, and (ii) four existing managed stores acquired from PHB in Feb 2013. However, factors that may have limited the GSP growth were (i) the closure of Shanghai Hongqiao and Guizhou Jin Feng Huang stores in July 2012, (ii) the temporary closure, for renovations, of the Shanghai flagship store from May to Aug 2012, and (iii) a -0.7%yoy decline in Same Store Sales Growth (SSSG).

All segments, except for consultancy and management services, reported growths ranging from 1.7%yoy to 19.8%yoy. In contrast, contribution from consultancy and management services declined marginally by -0.9%yoy. Please refer to Table 2 below.

Operating revenue increased by a smaller 2.0%yoy. Cumulative operating revenues grew by a smaller 2.0%yoy to RMB440.8m. The narrowed growth was brought about by a smaller growth recorded in commissions from concessionaire sales relative to the growth in concessionaire sales itself. This would imply that lower commissions were charged by PRG to its concessionaires during the period.

Meanwhile, operating profit took a -32.0%yoy dive. At the operating profit level, PRG recorded a -32.0%yoy reduction to RMB440.8m in 1HFY13. The large decline was the results of a proportionately larger growth in operating expenses relative to the growth in operating revenues. Total operating expenses grew 13.5%yoy to RMB2.2b on account of (i) lower merchandise gross margin of 15.5% (1HFY12: 17.0%), and (ii) proportionately higher staff and rental expenses which grew 28.6%yoy and 34.9%yoy respectively. Table 2 provides further details.

Net profit dropped by a slight larger -38.0%yoy. PRG’s 1HFY13 bottom line declined by a larger -38.0%yoy mainly as a result of (i) the incurrence of higher income expenses relating to bonds taken to refinance PRG’s short term borrowings, and (ii) an increment in the effective tax rate applied to 28.0% from 25.2% a year ago.

Maintain NEUTRAL on PHB. Given that the transient growth deceleration in China has already been factored into our earnings forecasts, we maintain NEUTRAL on PHB with an unchanged Target Price (TP) of RM4.00. We arrived at our TP by applying Price-Earnings Ratios (PERs) of 22.1x in respect of Parkson Retail Asia and 17.2x in respect of PRG. The PERs were derived based on the average 2-year historical PERs of the respective subsidiaries of PHB.

PRG’s continued expansion plans in China despite the decelerated growth is lauded. We believe that its efforts will pay off in the future as China pushes on its economic reform to boost domestic consumption as an additional growth engine to investments and exports.




Source/Extract/Excerpts/来源/转贴/摘录: MIDF-Research,
Publish date: 19/08/13

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