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Wednesday, February 22, 2017

Parkson Holdings - China Same Store Sales Recovering

Author: kiasutrader | Publish date: Wed, 22 Feb 2017, 09:16 AM

1H17 core LATAMI widened to RM129.9m compared to the core loss of RM60.3m in 1H16. We consider the results to be within our expectation on a better 2H17 as China is showing positive signs of recovery with its first positive same-store-sales growth after recording negative growth over the past several quarters. Upgrade to OUTPERFORM from UNDERPERFORM. Our target price is raised from RM0.70 to RM0.88 as we impute higher target prices for both its listed operating units.

Result Highlights. QoQ, 2Q17 revenue rose strongly by 19%, thanks to its China operations recording its first positive quarterly same-store-sales growth (SSSG) (+1.4% vs. -7.3% in 1Q17) after declining for several quarters and Malaysia (+4.2% vs -6.6% in 1Q17). The positive growth from China and Malaysia more than offset the weaker performance in Vietnam (- 11.3 vs. -10.3% vs in 2Q17), Myanmar (-29.5% vs. -28.2% in 1Q17) and Indonesia (-11.3% vs. -13.1% in 1Q17). The weakness in Vietnam continued due to competitive pressure and the shutting down of nonperforming store. Indonesian operations were impacted by disturbances caused by demonstrations against the Governor of the capital city during the quarter. However, start-up losses and higher depreciations that were incurred for new stores, where sales are lower at the initial stage of operations, resulted in 2Q17 core net losses of RM67.3m (excluding one-off impairment losses on goodwill, property and receivables amounting to RM190m and stripping out gains from disposal of a subsidiary at approximately RM330m) compared to RM62.6m in 1Q17.

YTD, 1H17 revenue fell 2% mitigated by narrowing negative SSSG in China due to its transformational strategies undertaken, which are bearing fruits. SSSG rates across the board were mixed including Malaysia (-1% compared to 1H16 of -11%), Vietnam (-11% vs. -2% in 1H16), Indonesia (- 8% vs. +6% in 1H16). However, Parkson 1H17 losses widened to RM129.9m after stripping out: (i) gain from disposal of a subsidiary amounting to RM330m, and (ii) impairment loss on intangible assets and receivable (RM190m) compared to a loss of RM60.3m in 1H16 and start-up losses at some stores in China.

Outlook. The Group is focused on delivering its transformational strategies closely aligning with the evolving retail markets, which include: (i) enriching its retail format and expanding its product and services offerings, (ii) optimising store effectiveness and efficiency, and (iii) enhancing cross platform experience for its customers. Specifically, the first Parkson Newcore Citymall was officially opened in January 2016 in Shanghai, which offers value for money products in a vibrant, energetic and innovative shopping environment. Sales of this Korean-themed outlet increased visibly in 2016 compared to the year before. Building on the success of this Korean-themed outlet and the joint venture with E•Land Group, the Group is targeting to open a second Parkson Newcore Citymall in Nanchang during 1H 2017. In June 2016, the Group achieved a milestone with the grand opening of the 230,000 sqm Qingdao Lion Mall, signifying the Group’s move into the shopping mall segment in China.

Our target price is raised from RM0.70 to RM0.88 as we impute higher target prices for both its listed operating units (Hong Kong-listed Parkson Retail Group Limited and Singapore-listed Parkson Retail Asia Limited) on the back of a better trading sentiment. Upgrade to OUTPERFORM from UNDERPERFORM.

Source: Kenanga Research - 22 Feb 2017

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