Weak numbers from Malaysia
We expected a weaker quarter from Malaysia, but the extent of the earnings miss surprised us. Election uncertainty in 4QFY6/13 aside, management guided that sales were affected by weak consumer sentiment in Malaysia which could continue for the next few quarters.
4Q forms just 7% of our and consensus FY13 estimates. FY13 core net profit was below at 82% of our forecast. We cut FY14-15 estimates by 20-22% for higher cost assumptions and introduce FY16 numbers. Our target price is reduced (still based on 22x CY14 P/E, in line with peers). We downgrade to Underperform from Outperform due to lower profitability in Malaysia. Catalysts are a return to profitability in Malaysia and Indonesia’s entry.
Core earnings fell by 12% yoy largely due to 1) a sharp drop in profits from Malaysia and 2) to a lesser extent, lower profits in Vietnam and 3) an increase in corporate overheads. Overall sales were healthy across the three key markets, but what dragged down profitability was Malaysia’s weak 4Q that saw sluggish SSSG of just 0.6% yoy. The election uncertainty aside, management reported weak consumer spending that necessitated heavy promotional activities. As a result, Malaysia’s 4Q PBT plunged 42% yoy with margins dropping to 6.6% from 16.8% as at 9M13. On a full-year basis, Malaysia’s PBT fell by 8.4% yoy with margins declining from 15.5% to 14.5%. This dragged down its overall earnings because Malaysia contributed 85% to FY13 PBT.
Encouraging signs elsewhere
Vietnam appears to be recovering with a second consecutive quarter of positive SSSG while Indonesia could see double-digit SSSG next year as management reported that it has secured good international brands as Parkson’s concessionaire as it prepares to launch its maiden store.
A resumption of profitability in Malaysia would be the key re-rating catalyst. It plans to increase its retail space by 22.1% in FY14 with the bulk in Indonesia. A 2.7 Scts final dividend was declared.
Indonesia was FY13’s best-performing market with PBT (S$5.5m) increasing by 48% on a full-year basis, and 62% in local currency terms. PBT margins rose to 10.4% from just 6.8% last year on economies of scale due to a larger store network.
Vietnam reported encouraging numbers as 4Q’s SSSG of 1.1% follows 3Q’s 1.2% growth. This bucked 1H’s negative SSSG and allowed its full-year SSSG to dip just marginally negative to -0.7%. It appears that the economy is recovering and consumer sentiment is picking up. Full-year PBT, however, dropped (S$3.3m) 45% yoy due to operating losses at its Landmark 72 store. Management is scaling down Landmark 72 store size to mitigate the losses and plans to introduce an F&B component to attract traffic. It aims to break even by FY14.
10 new stores will be opened in FY14 (57 stores currently), increasing the total retail space by 22.1%. Retail space at end-FY13 stood at 653,633 sq m and will be 798,409 sq m by end-FY14. The current store count is 57. The bulk of the expansion will take place in Indonesia (five new stores, 58,906 sq m), followed by Cambodia (one new store, 36,500 sq m), Vietnam (two new stores, 26,741 sq m) and Malaysia (two new stores, 22,629 sq m).
Publish date: 22/08/13