Parkson Holdings’ (PHB) Southeast Asia operations, Parkson Retail Asia (PRA) reported 1QFY18 net loss of SGD12.9m, wider than 1QFY17’s net loss of SGD5.2m. The lackluster performance was primarily due to weak operations across its geographical markets coupled with costs of new stores and new business ventures still being in their gestation period. Topline decreased to SGD91.1m in 1QFY18 (-2.4% YoY), in the absence of festive buying following the shift in festive calendar. Overall, the Southeast Asia operations’ performance is expected to remain subdued, as existing and new businesses’ costs continue compressing margins. Thus we deem near-term prospects to remain challenging for PRA, which will weigh on China’s improving contributions at Group level. We maintain our Neutral call with TP of RM0.75 unchanged.

• Sales and merchandise mix. PRA’s sales mix continue to record improvement with 1QFY18 direct sales making up 26% of total sales, higher than 1QFY17’s 22%. The favourable increased proportion of direct sales was attributed to the Group’s ongoing efforts on introducing various in-house apparel brands. In terms of merchandise types, fashion & apparel segment and cosmetic & accessories segment were slightly lower at 81% of total sales, compared to 82% in 1QFY17. Nonetheless, we view the consistency of these two segments above 80% of sales, coupled with higher direct sales proportion as positive, as these are the higher margin segments for PRA.

• Same store sales growth (SSSG). For 1QFY18, SSSGs were negative across PRA’s Malaysia, Indonesia and Vietnam markets. For Malaysia (SSSG: -6.8%) and Indonesia (SSSG: -13.8%), operations were mainly impacted by the absence of Hari Raya celebrations spending following the shift in festive calendar. This was already expected as the shopping spree in conjunction with Hari Raya was reported last quarter. Vietnam segment saw lower negative SSSG of - 7.8% for 1QFY18 (1QFY17: -10.3%) attributed to fading of novelty effect of international players’ entrance into the scene, its effects felt in 1QFY17. Competition, however, remains stiff in the region.

• Higher operating expenses was recorded in 1QFY18 (+4.1% YoY) despite lower revenue, as staff costs (+5.0% YoY), depreciation and amortization costs (+6.6% YoY) and rental costs (+4.2% YoY) increased, in respect to addition of new stores and new ventures. This was however slightly cushioned by reduction in promotional and advertising, selling and distribution and administrative expenses (- 12.5% YoY) incurred post-Hari Raya festivity, in addition to lower utility costs from energy-saving initiatives.

Source: PublicInvest Research - 15 Nov 2017