Parkson Holdings Berhad (PKS)’s FY17 revenue increased slightly by 2% to RM3.9bn, but net loss widened to RM120m. Exclusion of EIs resulted in core net loss of RM 502m vs RM101m in FY16. We are ceasing coverage on the stock as we believe that the retailing outlook would remain challenging for Parkson and losses likely to prolong.

FY17 Core Net Loss of RM 502m

FY17 revenue increased slightly by 2% yoy to RM3.9b as Malaysian and Indonesia operations registered 11% yoy and 13% yoy growth to RM485m and RM98m respectively, mainly driven by new stores opening as the SSSG was 3% in Malaysia and -2% in Indonesia. China operations (accounts for 66% of total FY17 revenue) saw flattish revenue growth as the retailing market remains challenging while SSSG declined by 1%. All market operations reported net operating loss for FY17 due to new store losses and non-performing stores, amounting to a RM125m loss (-16% yoy) vs RM105m in FY16. Exceptional items of RM389m in FY 17 included RM828m from disposal of the entire equity interest in Beijing Huadesheng Property Management Co., Ltd., and RM438m impairment loss on PPE and intangible assets. Stripping out EIs, the core net loss was RM502m, which was larger than RM101m loss in FY16 and significantly below our expectation of RM222.8m loss, mainly due to higher tax expenses.

EBIT Turned Positive in 4Q17 After 8 Quarters of Losses

In 4Q17, EBIT was RM8.3m as all operations, except for Vietnam and Myanmar, showed positive EBIT. China showed the strongest improvement with RM 22.8m EBIT compared to -RM41.8m in 4Q16 due to management’s cost control effort. However, we are not convinced that it can be sustained consistently due to a challenging environment, such as weak consumer sentiments, an increasingly crowded retail scene and proliferation of e-commerce.

Ceasing Coverage on Parkson

The Group has taken active measures to revamp existing stores and open new stores to maintain top line growth and improve SSSG. They are also developing an e-commerce platform for the Chinese market, albeit low contribution. However, we believe these measure will take time to bear fruit as the threats of e-commerce and shifting in consumer behaviour persist. Due to lack of resources, we cease coverage on the stock. Our last Target Price was RM0.51 based on RNAV.

Source: Affin Hwang Research - 28 Aug 2017