Period     3QFY13/9MFY13

Actual vs. Expectations   The 9MFY13 net profit of RM210.2m came in within our expectations at 71% of our full-year forecast. However, it was below the consensus forecast at only 62% of its full-year net profit estimate. 

Dividends    No dividend was declared during the quarter. 

Key Result Highlights     YoY, 3QFY13 registered a net profit of RM76.9m (-25% YoY, +3.6% QoQ) backed by RM932m in revenue (+1.6% YoY, +0.3% QoQ). Operationally, 3QFY13 gross sales proceeds (GSP) grew 3.2% YoY to RM3.2b driven by steady same-store-sales growth (SSSG) for Malaysia (+8.6%), Indonesia (+9.9%) and Vietnam (+1.2%) but negated partially by China (-2.8%). The SSSG rates for Malaysia and Vietnam for the quarter benefited from the shift in the Chinese New Year and Tet calendars, whereby the lunar new year commenced 18 days later  in FY2013 as compared to FY2012, which pushed the festive retail buying in these countries into 3QFY2013. The SSSG rate for Indonesia in 3QFY13 would have been at 4.7% excluding the sales of the store at Plaza Semanggi. This was because of the lower sales of a store located at Plaza Semanggi, Jakarta due to the short-term impact from the opening of a nearby competing mall. As a result of start-up losses in its China’s stores, higher operating expenses due to higher rental leases, staff and promotional costs incurred, the group’s operating profit margin fell 6.2%-pts to 22.5% in 3QFY13 as compared to 28.7% in 3QFY12. 

For the 9M YTD, the 9MFY13 revenue rose 3% YoY to RM2.7b, driven by YTD same-store sales growth (SSSG) rates for Malaysia (5.6%) and Indonesia (4.9%) but negated partially by China (-2%) and Vietnam (-1.3%). However, the 9MFY13 net profit fell faster than the turnover by 29% due to (1) start-up losses from new stores opening, (2) higher promotions incurred due to weaker market conditions and intense competitions and (3) a hit on rental expenses with the early extension on five leases, which are to be renewed in 2015, raising the group’s rental expenses by 8%.

Outlook    Looking ahead, we expect Parkson to continue to face a tough operating environment on the back of the weak consumer sentiment due to the economic slowdown, particularly in its China market, which contributes the crux of its earnings, and also due to higher other operating expenses from rental and staff costs and from the intense competitions encountered. 

It is expected to expand by opening an estimated 18 stores per annum over the next two years. Parkson plans to open an average of 5-6 new stores per year in China, two in Malaysia, 2-3 in Vietnam and 3-4 in Indonesia. 

The saving grace is a 3.6% dividend yield. 

Change to Forecasts    No changes to our FY13 and FY14 forecasts.

Rating  Maintain MARKET PERFORM

Valuation     We are cutting our target price from RM4.88 to RM4.06 as we have applied consensus target price instead of PER methodology to value both listed operating units (Hong Kong listed Parkson Retail Group Limited and Singapore listed Parkson Retail Asia Limited). 

Risks    A faster than expected slowdown in the global economy especially that of China, which will cut the purchasing power of consumers.

Source: Kenanga