Thursday 28 Mar 2024
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THE recent closure of Parkson Holdings Bhd’s loss-making branch in the tallest building in Vietnam — the 72-storey Keangnam Hanoi Landmark Tower — shows that the retail operating landscape there is getting tougher.

The Edge Financial Daily, quoting Parkson, reported last Thursday that the closure is temporary as the branch has been incurring losses since its opening three years ago, mainly due to the high rent and low traffic. The branch is renegotiating long-standing matters with the landlord.

Despite the tougher operating environment, Parkson still has a strong balance sheet. Its cash pile stood at RM2.8 billion with a cash position, net of borrowings, of RM951 million as at Sept 30, 2014.

On top of that, its 67.6%-owned Singapore-listed Parkson Retail Asia is disposing of its 47.46% stake in Sri Lankan Odel PLC, which will result in a cash inflow of S$27.6 million (RM73.73 million) to the group. Additionally, the group’s cash pile will be boosted further by the sale of KL Festival City Mall for RM349 million.

What Parkson has planned for the cash remains a mystery for analysts covering the stock point out that it has always had a huge cash pile. “Balance-sheetwise, they are always cash-rich, which is positive for them in the midst of the current challenging environment regionally,” says an analyst.

The temporary closure of Parkson’s Hanoi branch reinforces the fact that it is not just Malaysia but also a majority of markets in the region that is facing a challenging retail environment.

In a written response to The Edge, Parkson says the Malaysian retail market has softened but is stable.

“The Chinese retail scene has been affected by the overall economic slowdown in the country, austerity drive by the government to curb lavish spending on entertainment and gifts, which has affected the sales of corporate gifts, and the rise in e-commerce, but is still profitable. In Indonesia, the retail market is very robust and in Myanmar, our store is performing well,” says a company spokesperson.

Despite the difficult situation in Vietnam that has caused Parkson to report losses for that segment in its latest financial year ended June 30, 2014 (FY2014), the retail player is still positive on the market.

The group says with the adoption of some of its strategies, it is confident that it can turn around its Hanoi unit. “We remain positive on the Vietnamese retail scene, as can be seen in the opening of our latest store in Danang, central Vietnam, on Jan 11,” it adds.

Parkson is the first foreign-owned department store to be given a licence to operate in Vietnam. It opened its first flagship store in Ho Chi Minh City in June 2005. Then, it entered the Indonesian market in 2011, followed by Myanmar in 2013.

Apart from these markets and its jewel in the crown, China (which contributed the highest segmental profit of RM222 million in FY2014), Parkson had a presence in Sri Lanka through its 47.46% stake in a Sri Lankan retail player Odel. In October last year, Parkson sold that stake in its associate, making an estimated gain of S$601,000.

Today, Parkson has a network of 123 stores across five countries — Malaysia (40), China (59), Indonesia (14), Vietnam (9) and Myanmar (1). 

The retail operating landscape is getting more challenging, which is evident in the numbers.

For its 1Q2015 results, Parkson’s profit dropped 38% to RM29.8 million due to several factors, including weak consumer sentiment.

Profit contribution from all of its markets across the region — except for Malaysia where it maintained its earnings — fell. Its China operation saw its profit drop by half to RM222 million in FY2014 compared with RM442 million a year earlier, while its Indonesian segment fell to RM6 million from RM13 million. The Vietnam and Myanmar markets slipped into the red in FY2014, registering a loss of RM10 million compared with a RM4 million profit in FY2013.

A number of research houses trimmed their target prices for the stock following its weak FY2014 results. AmResearch, in a November report, lowered its fair value for Parkson to RM3.40 from RM3.85 per share and AffinHwang reduced its target price to RM2.17 from RM2.20.

 AmResearch, in a Jan 8 report, points out that the group continues to engage in active share buybacks, providing support to its share price. “Valuationwise, the stock [at RM2.50] is trading at a forward price-earnings ratio (PER) of 16 times. Stripping away its net cash, the PER stands at an attractive nine times,” it says.

AffinHwang, in November note, says going into 2015, it continues to expect the operating environment to remain challenging.

Parkson, conscious of the stiffer operating landscape, has started implementing a number of strategies to ride out the regional retail headwinds.

One of them is venturing out of its department store comfort zone and setting up online shopping facilities in Malaysia and China, which began in 2012.  

“We are also working with one of the Internet giants in China to create an Online-To-Offline business model and will continue to explore other avenues of digital shopping,” the company spokesperson says.

In 2013, statistics show that online transactions in China reached RMB1.84 trillion (RM1.07 trillion) and is expected to increase to RMB3.79 trillion next year.

Apart from online shopping, the group launched the Parkson Card in Malaysia last month in a move to enhance customer services and reward its customers.

“We intend to roll out the Parkson Card at all our stores in Southeast Asia and China very soon. Cardholders will be able to enjoy privileges wherever they may be across the region,” says the company spokesperson.

The spokesperson adds that the group is intensifying its branding strategy and diversifying its revenue stream by owning shopping malls. It is also making adjustments to its product mix to boost sales and margins.

In the meantime, Parkson is building three malls in Qingdao (China), Phnom Penh (Cambodia) and Melaka. The Qingdao mall is expected to open in the second half of the year and the Phnom Penh shopping centre, in the second half of 2016. The Melaka mall is in the final stage of planning. “Having our own shopping malls will help reduce our rent, as well as provide a source of recurring income,” says the spokesperson.

 An analyst covering the stock notes that the strategies Parkson has implemented are sound but will take some time to show results.

 

This article first appeared in The Edge Malaysia Weekly, on January 12 - 18 , 2015.

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