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Why Parkson Could Be A Value Trap - Alex Tan
June 17, 2016
Parkson opened its first store at Sungei Wang Plaza in 1987. It is an Asian-based departmental store operator with an extensive network spanning across Malaysia, China, Vietnam, Indonesia, and Myanmar.
Source: Bloomberg
Looking through Parkson's share price performance over the years, some investors might be wondering, is the company currently undervalued? Its share price has fallen significantly to RM 0.86 as of June 6, 2016. Is Parkson a bargain? or possibly a value trap? In this article, I will provide a few key points for you to consider before acquiring Parkson's shares.
Profits Under Pressure
Despite increasing revenue in the past 3 years, Parkson's profitability has been facing significant stress and finally dipped into the red in the latest quarter. High operating costs and stiff competitions, particularly from e-commerce, were the main contributing factors.
The decreasing profitability, of course, was very obvious to many investors, especially to those practising value investing. However, why are there still people buying into Parkson? The very reason being its high net cash position.
From the above table, Parkson's net cash position has shrunk from 48% of market cap to just 28% as of FY15. Interestingly, a veteran value investor in Malaysia mentioned that Parkson was attractive due to its strong balance sheet. Indeed, the company's balance sheet was and is still strong with cash surplus.
However, one needs to exercise caution when it comes to this situation. Earnings is the key driver to higher share price so, try to ask yourself, can the cash be used to generate more profits in the future? If not, I don't see the reason why its not paid out as dividends to its shareholders.
Net Debt ... Finally
True enough, Parkson's net cash position has become net debt in the latest quarterly result. After doing some ground works, I found out that some of Parkson's stores are not doing well as compared to its peers. Customer flows were extremely bad in a few local malls and deterioration in fundamentals have turned its advantage into disadvantage.
Clearly, the business is facing high pressure from e-commerce, lack of competitive advantages, incurring high operational costs and other forms of competitions. Personally, I don't think it's worthwhile to invest despite of its high net cash position. If this weakness persist, I foresee that its net debt position will continue to take charge and Parkson's borrowings will eventually starts to build up.
In conclusion, I think it's kind of hard for Parkson to turnaround if the management continues what they do currently with no changes to its business model. If the results have been disappointing for many years, with the same management team in charge, how likely is it that they can do something different to turnaround? This is a question worth giving a thought. I may be wrong, so please transact at your own risks and exercise your judgement before investing.
http://www.valueinvestingstock.com/#!Why-Parkson-Could-Be-A-Value-Trap/cour/575578e90cf2b2ec517e9043
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Discussions
1 person likes this. Showing 31 of 31 comments
Parkson practically has no bright prospect, only those who can not understood what Jack Ma was talking about will still buy and hold it.
2016-06-17 18:29
Parkson just steps away from joining Hankyu Jaya, Chujitsu, .... into the history books.
2016-06-17 19:19
Nice one, anyone can mention Jack Ma or Jeff Bezos, and every mall in the world becomes dinosaur
2016-06-18 06:48
Dear KianWei, I'm the author of this article. Please make sure that the link to my page, after you pasted my articles, is clickable. Thanks.
2016-06-18 09:08
don fool us by saying parkson facing e-commerce competition. since when malaysian no more go to mall to shop ?
2016-06-18 17:46
Also dun use high cost as an excuse . if your company operation cost is high , would you not try to lower down the cost ? unless you purposely doing so, make the company sank into red .
2016-06-18 17:58
Parkson share price being press down , when lion group are having tough time last 2 years ago. I guess someone purposely to press down the price to make money. one day you will know when parkson go back to 2 , 3 RM .
2016-06-18 17:58
It looks like mall retailing slowly becoming a sunset industry. Aeon, Parkson, Tstore are facing a very challenging future. Don't under estimate the potential of E-commerce trend. In the near future, people may be able get price and place an order of a product on internet instantly while doing window shopping.
2016-06-18 18:38
What sunset industry weekend u got go aeon patkson or not. Can u see the crowd. Mark my word parkson will go back above 2 rm when the boss collect enough
2016-06-19 00:51
ks55, appreciate ur detail comments. Dept store is sunset business. online shopping is the trend that cut down middleman and rental cost. this is the fact of retail model. high cost of mall rental and labour is hardly reduce and traffic of shopper is getting lesser and squee out by online platform. shopping mall in China and SG mainly target family oriented business like F
2016-06-19 10:52
choonyong is your post meaning people no more go to shopping malls to shop? All stay at home and buy everything online?
Posted by choonyong > Jun 19, 2016 10:52 AM | Report Abuse
ks55, appreciate ur detail comments. Dept store is sunset business. online shopping is the trend that cut down middleman and rental cost. this is the fact of retail model. high cost of mall rental and labour is hardly reduce and traffic of shopper is getting lesser and squee out by online platform. shopping mall in China and SG mainly target family oriented business like F
2016-06-19 11:07
choonyong why people pay RM 2.28 for Padini? By right if shopping online is true for Parkson it should be true as well for Padini, Aeon, etc.
2016-06-19 11:11
Posted by Parkson > Jun 19, 2016 11:11 AM | Report Abuse
choonyong why people pay RM 2.28 for Padini? By right if shopping online is true for Parkson it should be true as well for Padini, Aeon, etc.
PARKSON,
THIS SAME QUESTIONED WAS POSED TO ME BY MR LEE OF SITIAWAN.
MY ANSWER TO HIM WAS THIS,
THERE IS A WHOLE WORLD OF DIFFERENCE BETWEEN PARKSON AND PADINI
PARKSON OBTAINS ITS GOODS FROM OTHER MANUFACTURERS WHILE PADINI CREATES ITS OWN PRODUCTS.
SO YOU CAN BYPASS PARKSON BY BUYING ONLINE 30% TO 40% CHEAPER FOR THE SAME TYPES OF GOODS PARKSON SELLS.
HOWEVER, SINCE PADINI IS THE ULTIMATE SOLE OWNER, ALL CONVENTIONAL RETAILERS OR E COMMERCE AGENTS MUST STILL BUY THEIR PADINI MADE GOODS FROM PADINI.
SO PADINI HAS A ROCK SOLID MONOPOLY ON ITS PRODUCTS WHILE PARKSON IS VERY VULNERABLE WITH COMPETITORS LIKE ALIBABA, SINGPOST, LAZADA AND 11STREET
SINCE PARKSON IS DOOMED FOR SURE THE ONLY SOLUTION IS TO DISMANTLE IT AND RETURN CASH TO SHAREHOLDERS.
IF YOU KNOW THAT THE HORSE YOU ARE RIDING ON IS DEAD. THE BEST COURSE OF ACTION IS TO DISMOUNT.
2016-06-19 11:31
Calvintaneng where does Parkson money every day shares buy back come from?
http://www.bursamalaysia.com/market/listed-companies/company-announcements/5127613
Why Padini don't have the money to do same? Why Padini director Chan Kwai Heng sold their shares if their business is good? He only own 312,900 shares far less than William Cheng stake in Parkson.
http://www.bursamalaysia.com/market/listed-companies/company-announcements/5125209
2016-06-19 11:45
Posted by Parkson > Jun 19, 2016 11:45 AM | Report Abuse
Calvintaneng where does Parkson money every day shares buy back come from?
http://www.bursamalaysia.com/market/listed-companies/company-announcements/5127613
Why Padini don't have the money to do same? Why Padini director Chan Kwai Heng sold their shares if their business is good? He only own 312,900 shares far less than William Cheng stake in Parkson.
http://www.bursamalaysia.com/market/listed-companies/company-announcements/5125209
MY ANSWER IS THIS
BETTER SELL BOTH PARKSON AND PADINI
IN TIMES OF RECESSION WHEN MONEY IS TIGHT BOTH WILL BE IMPACTED. PADINI WILL STILL SURVIVE WHILE PARKSON OVER A LONGER TERM WILL LOSE ALL ITS CASH. WC IS DESTROYING ITS CASH HOARD BY FOOLISHLY THROWING GOOD MONIES INTO THE BOTTOMLESS PIT.
ONLY ONE CLASS OF STOCKS YOU CAN NOW BUY AND HOLD FOR THE NEXT 3 YEARS. ALL OIL PALM RELATED STOCKS DUE TO EL NINO AND LA NINA.
2016-06-19 11:54
Calvintaneng you must ask whether the person who start this blog whether he agree. Why he start his blog? After so many comments why no comments from him?
Posted by calvintaneng > Jun 19, 2016 11:54 AM | Report Abuse
Posted by Parkson > Jun 19, 2016 11:45 AM | Report Abuse
Calvintaneng where does Parkson money every day shares buy back come from?
http://www.bursamalaysia.com/market/listed-companies/company-announcements/5127613
Why Padini don't have the money to do same? Why Padini director Chan Kwai Heng sold their shares if their business is good? He only own 312,900 shares far less than William Cheng stake in Parkson.
http://www.bursamalaysia.com/market/listed-companies/company-announcements/5125209
MY ANSWER IS THIS
BETTER SELL BOTH PARKSON AND PADINI
IN TIMES OF RECESSION WHEN MONEY IS TIGHT BOTH WILL BE IMPACTED. PADINI WILL STILL SURVIVE WHILE PARKSON OVER A LONGER TERM WILL LOSE ALL ITS CASH. WC IS DESTROYING ITS CASH HOARD BY FOOLISHLY THROWING GOOD MONIES INTO THE BOTTOMLESS PIT.
ONLY ONE CLASS OF STOCKS YOU CAN NOW BUY AND HOLD FOR THE NEXT 3 YEARS. ALL OIL PALM RELATED STOCKS DUE TO EL NINO AND LA NINA.
2016-06-19 12:04
Hi Stockmanmy, I would like to hear your comments on why you label WTK as a value trap? How would you compare WTK to Focus Lumber Bhd?
2016-06-19 12:16
My blog post is to provide a personal opinion of myself. That is just what I think. Parkson COULD be a value trap, it is not Parkson IS a value trap.
The purpose of my blog is to open up good and polite discussion among my readers, not hostile arguments. i3investor.com should play its role in making sure that members are responsible with what they say.
2016-06-21 15:25
For those who wish to stay updated to my blog, please be my subscriber
@www.valueinvestingstock.com/subscribe. You will be given a free eBook upon subscription. Thanks.
2016-06-21 15:27
You mean Prangin Mall Parkson closing down? Not bankrupt just close down unprofitable Parkson outlet. Today Parkson up back so this blog title look like wrong.
Posted by Apollo Ang > Jun 21, 2016 09:05 PM | Report Abuse
remember georgetown? bangrupt already
2016-06-21 21:10
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