Monday, December 30, 2013

Parkson Holdings (Prospects Pulled Down By China Weak Retail Demand)

Granted, the lackluetre growth of China’s retail and consumer market has pulled its earnings down so far this year.

Briefly, department stores in China are facing challenges from the slowing economy, rising wage costs and heightened competition, not to mention the advent of online shopping.

While not many observers are excited about Parksin, the sheer size of China’s consumer market cannot be ignored. Parkson’s plan is to expand selectively and close non performing stores on the mainland will reflect on the group’s earnings going forward.

In China, Parkson operates through its 51.5% subsidiary Parkson Retail Group Ltd, that is listed on the HKSE. For its fourth quarter ended June 30 2013 (4QFY2013), Parkson recorded a net profit of rm30.2 million (-63% year on year), -61% quarter on quarter on the back of rm802 million revenue. This is only 78% of its full year net profit.

Earnings were dragged by its China operations/parkson Retail Group which booked rm80.7 million in earnings in 4Q (-41% y on y, -47% q on q) with 0.7% SSSG versus -2.8% in 3QFY2013. This was mainly attributed to weaker consuemr demand arising from China.

Similarly its second largest revenue contributor Malaysia expereinced softer SSSG in the quarter under review.

Within the Parkson group, the performers appear to be its Malaysia and Indonesia operations. The company’s operations in Malaysia, Indonesia and Vietnam are parked under its Singapore listed, 67% subsidiary Parkson Retail Asia Ltd.

The Parkson stores in Malaysia and Indonesia may have performed well, but they account for only a quarter of the company’s earnings and cannot make up for the sluggish Parkson China. Decent growth in Malaysia and Indonesia cannot offset the slowdown in consumer demand in China because China contributes about 75% to group earnings while Malaysia and Indonesia combined account for only 23%.

Nevertheless, the group hopes to expand its retail network in China.

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Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.