Parkson Holdings (PHB) which owns 54.67% of Parkson Retail Group (PRG), has announced the disposal of its 100% interest Beijing Huadesheng Property Management Co., Ltd to Shenzhen Qianhai Tulan Investment Centre (LLP) and Shanghai Changkun Investment Management Co Ltd. Following the disposal, the Group’s earnings is expected to be higher by c.RM300m or 28 sen per share, while its net assets on a proforma basis, will be higher by c.RM300m (29 sen per share) as at 30 June 2015. Pending further clarity of this transaction and also an EGM for shareholders’ approval, our Neutral call and TP remains unchanged at RM0.72, based on 14x multiple of our FY17F EPS. With the relevant approvals, transaction is expected to be completed by FYE 30 June 2017.

Rationale. The department store operation located at Qi Sheng Middle Street, Chaoyang District, Beiing has been losss-making since opening in December 2010. In light of the challenging operating environment, the Directors of PRG saw the disposal as an opportunity to unlock the value of the disposal subsidiary at an attractive price. The disposal will also see the Group to cease any investment resources to a loss-making operation, with the proceeds to improve the financial position of the Group.

Without taking into account equity consideration B and equity consideration C and based on equity consideration A which is payable in cash of RMB1.7bn and the loan consideration in the aggregate amount of RMB2.3bn, but after the deduction of the currently estimated taxes, professional fees and other expenses attributable to the disposal. PRG estimated that the net proceeds will be approximately RMB1.9bn. The Group will use these proceeds to enhance and expand its fashion and F&B brands, while exploring new business investment opportunities to expand the Group’s revenue streams.

China to recap for FY16 reported an 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 has remain challenging, 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.

Source: PublicInvest Research - 14 Sep 2016