Parkson Retail Asia
Target Price: SGD1.28
4Q13 a Blip On Slowing Sales Momentum
PRA’s 4Q13 recurring profit of SGD3.4m (-47% y-o-y, -65% q-o-q) was below consensus’ SGD13m estimate, mainly due to weak SSSG and margin dips in Malaysia and Vietnam. We now expect FY14F-15F earnings to grow by 9%/33% to SGD41m/SGD55m, and switch to a DCF valuation to better reflect the company’s cash-generative nature and SGD177m net cash. Maintain NEUTRAL, with a lower SGD1.28 TP.
• Mere 1% y-o-y topline growth. Parkson Retail Asia (PRA)’s revenue was relatively unchanged at SGD103m, mainly due to weak same-store-sales growth (SSSG) in Malaysia and its store closure at The Mall, Kuala Lumpur. 4Q13 SSSG was +0.6% for Malaysia, +1.1% for Vietnam and +8.5% for Indonesia. The company attributed the slow momentum to soft consumer spending during the election quarter in Malaysia and economic slowdown in Vietnam. Meanwhile, Indonesia shined on improved traffic and selling prices. Malaysia remained the largest revenue contributor, accounting for 79% of total revenue and almost all its 4Q13 profit.
• Net margin contracts 3.0ppt. Excluding a SGD2.5m foreign exchange gain a year ago, recurring net margin fell 3.0ppts to 3.3% on intense price promotions in Malaysia to attract traffic, increased losses from new stores in Vietnam, and higher non-operational costs such as e-commerce start-up and head office expenses.
• Introducing FY15F and quarterly estimates. Following the 4Q13 blip, we cut our FY14 profit estimates by 49% to SGD41m and project earnings to grow by 33% to SGD55m in FY15. The estimates are 33% and 26% below consensus forecasts respectively. In addition, we expect earnings to contract by 27% y-o-y to SGD8.5m in 1Q14, before recovering by 12% to SGD15m in 2Q, its traditional peak period.
• Maintain NEUTRAL, with lower SGD1.28 TP. To better reflect PRA’s cash-generative characteristics and its SGD177m net cash position, we switch to a DCF valuation, deriving a lower TP of SGD1.28 (from SGD1.77), based on an 11.3% WACC and a 3.6% terminal growth.
Publish date: 22/08/13