Thursday, May 22, 2014

Parkson Holdings - Still Too Dependent On China

It is planning to venture into speciality shops for in house brands and online shopping. Not just that it wants to own shopping malls.

The group’s HK listed Parkson retail Group Ltd is spending rm900 million building a mega mall in China. Locally Parkson Holdings Bhd is investing rm800 million to rm900 million in a mall in Malacca and one in Cambodia for USD170 million.

Its in house brands can rake in gross profit margins of 35% to 40% after discount as opposed to 12% to 16% margins gained from some of the third party brands they carry. Parkson intends for its in house brands to contribute 30% of its sales in five years from 2014 and eventually 50%.

To recap, the lackluster interest in its share price is mainly due to the gloomy economic outlook on China when Parkson group generates a large bulk of its revenue. Moreover stiff competition in China was getting stiff.

Parkson Holdings derives 60% of its revenue from its China operations that is housed under its 51.75% owned subsidiary PRG.

Currently (May 2014) there are no near term excitement in China’s economic indicators.

Its Vietnam operation is also affected by the sharp currency devaluation.

Malaysia’s operations accounted for 25.5% of revenue, while Indonesia’s opearations accounted for 4% and Vietnam’s and Myanmar’s accounted for 3.2%.

Parkson Holdings are still very much dependent on China … the rest might grow but the percentage is not big.

Mall ownerships would make Parkson Holdings an asset heavy entity and tap its current (May 2014) cash coffer. With MegaSteel in the picture … it is unclear how this cross holding would affect the group if Parkson were to run a debt position.

The large borrowings in the Lion group raises more concerns as Parkson embarked on expansion plans that needed huge capex, which in turn lessened cash for dividend.

As at Dec 31 2013 Parkson Holdings had rm1.7 billion in net cash after deducting its total borrowings. This is in stark contrast to the other operations of the Lion Group, which are in net position.

Parkson’s move towards mall ownership is a progressive one, taking heed of is current (May 2014) sole self owned KL Festival City Mall which has been performing well.

Some observers pointed that it is a positive move but it needs a certain scale of mall ownership to have an impact. An example is AEON which has taken about 20 years to build up a certain scale. While most of WEON’s revenue still comes from retail, its bottomline is attributed to properties.

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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.