Price (16 Aug 13 , HK$) 3.52
TP (prev. TP HK$) 2.80 (3.48)
1H13 NP -38% YoY, margin down 250 bp to 3.6%; expansion plan to weigh in on 2H margin recovery
● 1H13 net profit fell 38% YoY to Rmb325 mn (22% below consensus); net margin fell 250 bp YoY to 3.6%. Gross sales proceeds (GSP) grew 5% YoY on -0.7% SSSG. New stores dilution and April gold rush pulled down concession rate by 72 bp YoY. Operating cost (opex) ratio rose 192 bp YoY to 16.6%.
● There are 18 lossmaking stores (1/3 of total); 8 were comp stores and 10 new ones per our estimate. New stores losses in 1H13 were Rmb59 mn; company’s guidance for FY13 is Rmb150-160 mn.
● Three stores remain in the company’s 7-store expansion plan. For FY13, it guides 10-11% GSP growth, concession rate at 17.6% (-80 bp YoY), opex ratio at 16.5%-17.0% (vs FY12’s 15.7%). We believe the targets may prove challenging given its still aggressive expansion plan.
● Stay UNDERPERFORM with new TP of HK$2.80 (from HK$3.48) as we cut 2013/14/15E EPS by 21%/23%/30%, on higher cost ratios from underperforming comp stores and new stores. We continue to see very low earnings visibility. Our TP is based on 9x 12M-fwd P/E. It trades at 10x 12M-fwd P/E (vs GE’s 14x 12M-fwd P/E, Intime’s 13x, Springland’s 11.5x, US dept store’s 13x). It trades at 1.4x 2013 P/B (vs Intime & Springland at 1.8x P/B, GE 3.2x P/B).
1H13 SSSG: -0.7%. July-Aug to-date SSSG: flat
Same-store traffic: down -7 to -8%, and was more severe in Tier-1 than in Tier 2/3 cities. By-category: Gold and jewellery was 12% in 1Q and >20% in 2Q. Excluding gold & jewellery, other merchandise’s overall SSSG was -1% in 1H. Apparel was negative low single digit, while cosmetics & accessory outperformed.
One out of the 18 lossmaking stores will be closed: we believe more closures are much needed
We estimate, aside from about ten stores added in 2011-2013 which are still ramping up, the other eight are older comp stores. One of the comp stores (Shijiazhuang store) will be closed in August. We believe more are need to be closed down decisively.
Comparing stores built in and before 2011, the average size of those Parkson stores are only GFA 33k, 20% smaller than Intime’s then average of 42k sqm, GE’s 40k sqm, Springland’s 37k sqm. Smaller stores are less capable to accommodate experience-based amenities (e.g. food court, cinema, gaming arcade), which are now critical to attracting customer and defending against e-commerce. At the time of an eventual macro recovery, Parkson’s older stores may still sustain prolonged traffic loss and are unlikely to be the first to rebound.
Seven pipelines: Pressure remains on 2H13-2014 recovery
Expansion in 2013-14 remained largely unchanged. Four stores have been opened so far, with three more to go. Parkson still plans to add 4-5 stores/year 2014 onwards. These are on average the same size as its current store portfolio, and much smaller than peers’. We expect 2014 new store losses remain at the high level forecasted for 2013 (Rmb160 mn).
Bond issuance: Parkson launched sales of US$500 mn (Rmb3.1 bn), 4.5% coupon, three-year note (Ba1 by Moody, BBB- by Fitch) in early May. Proceeds are to pay Rmb2.5 bn loan due in November and capex (we est Rmb1.1 bn in 2013, including Qingdao mall acquisition). Although it had Rmb1 bn pure cash and Rmb3.9 bn short-term deposits at March end, this loan allows extra flexibility for other purposes such as M&A.
Publish date: 19/08/13