Parkson Holdings (PHB) registered its full year FY16 revenue of RM3.9bn (+3.9% YoY), slightly exceeding our expectations by 3.9%. 4QFY16 net loss was -RM95.8m, resulting in cumulative FY16 net loss of -RM89.5m, which was partly cushioned by one-off gain from partial disposal of stake in Parkson Hanoi (RM136.3m), though weighed down by other one-offs including impairment losses on other receivables, goodwill and property, plant and equipment. Excluding the exceptional items, PHB would have recorded pretax loss of RM147.0m, and subsequently core net loss of RM148.9m. The core net loss is mainly attributed to higher operating expenses (+10.9% YoY) and finance costs (+24.5% YoY). We believe it becomes more challenging for Parkson’s turnaround initiatives to generate positive results in the near term due to escalating cost. Hence, we cut our FY17-18F earnings forecasts by 18-22%. As such, our TP is reduced from RM0.88 to RM0.72, based on 14x multiple of our FY17F EPS. Maintain Neutral on Parkson.

China operations’ FY16 revenue increased by 5.5%, though partly due to better translation effects. The segment reported operating loss of -RM90.7m, primarily due to higher costs from its new business ventures and new stores in this ramp-up period. Prospects in the region remain tough, in view of weak spending and consumption pattern coupled with stiff competition, which also comes from rapid development of e-commerce platforms. Parkson is also stepping up its efforts to keep relevant, having launched a new mobile shopping application, Parkson Plaza in June to leverage on digital platforms in enhancing customers’ shopping experiences.

Southeast Asia segments. Parkson saw its revenue increase in Malaysia (+2.7% YoY) and Indonesia (15.2% YoY) while Vietnam & Myanmar’s sales declined by -12.7% YoY, attributed to higher competition in Vietnam retail environment. On operating level, only Malaysia recorded FY16 operating profit (-62.0% YoY), while other regions reported operating losses. Indonesia segment continues benefitting from strong consumer sentiment, though new stores’ losses contributed to the operating loss. We expect Southeast Asia segment performance to remain subdued, pressed by weak sentiment in Malaysia and growing competition across all operations.

Source: PublicInvest Research - 25 Aug 2016