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Tuesday, February 21, 2017

Parkson Holdings Berhad - PRG Work in Progress

Author: PublicInvest   |   Publish date: Tue, 21 Feb 2017, 09:20 AM 


Parkson Retail Group (PRG), Parkson Holdings’ China arm reported 4QFY16 net profit of CNY395.3m, while cumulative FY16 net profit was CNY147.3m. After stripping out exceptional items including a gain on disposal (CNY1282.9m) and goodwill impairment (-CNY402.0m), 4QFY16 core net loss was CNY485.5m, bringing FY16 core net loss to CNY733.6m. Topline grew by 2.6% YoY in 4QFY16, but overall FY16 revenue was down by 2.3% to CNY4,133.6m. As the retail sector remains challenging and highly competitive, PRG relies on promotions and discounts as the most effective method to retain market share, hence hurting margins and resulting in the core net loss. We expect margins to remain squeezed in near term, but look forward for new stores and business ventures to strengthen PRG’s financials in the longer term. We keep our earnings estimates pending better guidance from Parkson Holdings’ results, expected to be released later today. We retain our Neutral call and TP of RM0.72, premised on 14x our FY17F EPS.
  • To recap, 2016 was a year of new business ventures, which began with the opening of the Korean-themed mall, Parkson Newcore Citymall (January 2016), followed by its foray into the shopping mall segment in China through Qingdao Lion Mall (June 2016) which showcased PRG’s new all-in retail format. Next, “Parkson Supermarket”, PRG’s first gourmet supermarket was launched in September 2016, and a flagship bakery store, “Hogan Bakery” was added to enhance the Group’s development into F&B. On usage of technology, PRG introduced a mobile shopping app, “Parkson Plaza” and upgraded its customer loyalty programme, which services 8.1m card members across China, as at 31 December 2016.
  • Same store sales growth (SSSG) for PRG’s 4QFY16 was +1.4%, a positive change from the previous -7.3% (3QFY16), -9.7% (2QFY16) and - 9.0% (1QFY16). Sales mix improved as FY16 direct sales made up 13.2% of total sales, which was higher compared to 11.1% in FY15. In CY16, a total of six underperforming stores were closed, a relocation project was terminated, and one store was transformed into Parkson Newcore Outlet, as PRG continues evaluating store performance and operations efficiency. Going forward, a second Parkson Newcore Citymall will be opened in Nanchang in 1HCY17. Two department stores in Changsha and Chenzhou will be opened in CY17, including a new “Parkson Beauty”, a specialty store focusing on premium cosmetic and skin care products. PRG will also introduce more F&B brands to complement its lifestyle retail concept.
  • One-off items. Two material one-off items are recognized in FY16, i) gain of CNY1282.9m from a disposal and ii) impairment of CNY402.0m for goodwill. The CNY1282.9m gain came from the disposal of the entire equity interest in Beijing Huadesheng Property Management Co., Ltd in December 2016. The transaction generated cash proceeds of CNY2.32bn, which is planned to be used for future investments and developments. The impairment, on the other hand, was recognized for goodwill of underperforming and closed stores in 2016.
Source: PublicInvest Research - 21 Feb 2017

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