Wednesday, June 18, 2014

Quick Look at Parkson Asia Retail

First the numbers

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Parkson is only listed from end 2011, these are the numbers available.

Retail business is highly competitive. Parkson is a well known brand, I have been to Parkson in Vietnam and Malaysia.

One thing that stand out very clearly, is the clarity of growth drivers. From organic SSSG (same store sale growth) to opening of new stores.

How did it appear in my screening. It is at 52 week low, a 50% fall from its peak. AT 86 cents now, it is actually at historical low, no matter how short the history is (2 plus years)

It is not difficult to understand why, Parkson is positioned to be a strong grower, and command a PE of 25 at its peak, when the growth did not materialize, it is no wonder it will fall from the top. From the risk section of the prospectus, it is said that new stores usually take 2 years to turn into profitable units. And such, prepare for more short term pains, since there is a steady opening of new stores.

Picture2

(http://infopub.sgx.com/FileOpen/PRA_FY2014_Q3_presentation.ashx?App=Announcement&FileID=296049 See slide 23)

Also besides, Indonesia, Malaysia and Vietnam are registering flat or negative SSSG.

I however, found it rather puzzling in a few areas. As I mentioned, the stock price is in a free fall, especially when the recent Q3 fail to inspire.

But Vietnam is stabilizing for the past few quarters, Sri-Lanka is doing well, the 3 temporary closures of Malaysia Stores has reopened. Indonesia have 2 stores that are newly opened, with more in the pipeline. Has market went from over optimistic to pessimistic? Also, the operating numbers are further aggravated by currency weaknesses in Malaysia and Indonesia etc.

I took a look at China Baihui which is also listed in SGX, the numbers are world apart, there isn't even stability of profits, I do not want to go into valuation. Also, Parkson is a more established brand.

Then I look at business, the parent company and key personals hold the majority of stake in Parkson Asia Retail, they did not pay themselves options, remmuration seem fair.

From a negligible dividend of 1%, yield has become a more acceptable 3% with the fall in price.They aim to declare 40-50% of profits as dividends, although there is no fix dividend policy. But given the parent company hold the bulk of the shares, it is very unlikely that do not want dividends to flow back. In fact, they gave a special 3 cents dividend in Q3, and according to CIMB research is open to the idea of 100% payout in current year.

Another reason why the company is not doing well, could be its parents company is facing headwinds too.

See:Moody's changes Parkson Retail Group (PArkson retail sister or parent, whatever you call it)'s outlook to negative

(https://www.moodys.com/research/Moodys-changes-Parkson-Retail-Groups-outlook-to-negative--PR_284163)

But Parkson is a net cash company with 24 cents per shares, assume the same poor Q3 results for Q4, highly unlikely, PE for 2014 will be 15. Low for a cash generating, asset-light business (Main revenue from concessionary sales) with a strong brand name. If you take away the cash, PE is around 10.

Market is assuming Parkson will be a negative growth company in the future. A flat growth will make it fairly valued. A negative growth over-valued.

Looking at factors that could have affect sales, one of it could be the MH370  incident, affecting Chinese tourists. I felt that is one off incident.

I think Indonesia and Sri Lanka could offset Vietnam, and Malaysia could managed flat growth in the short term, and in the longer term, the consumer story has not changed. If Company goes into a depression with a weaker than Q4 results, I would accumulate more.

 

4 comments:

  1. Seems like the stock price has retreated by 8-10% in the past week. Interesting I went to HCM this week and I visited the Parkson shopping mall in District 1 and my first impression is it's mainly cater to the foreigners with the locals accounting for probably 10-20%. Spoke to 1 of the sales girl and price for one of their women shoe collection starts at USD60 which is pretty steep. Progress seems limited if foreigners is their main target audience.

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  2. Hi QL,

    Thanks for the update. I think so too, I went there last year, and compare the kids toys there and the nearby mall. The nearby mall is offering 20% discount for the same toy, although they have the same retail place. But the atas feel is there, just not sure if it can attract a lot of atas local. HCM is the capital , I am sure Hanoi will be worse

    Parkson mall goods are mid- high end. It is quite a good experience except for the price. The one thing I cannot fathom is the F&B at the top level, is very empty. F&B area is usually the crowded area.

    2014 and 2015, they are still expanding at Vietnam, which is a major risk for me.

    With the falling of price, it might start to fulfilled the criteria of yield and growth play.

    Monitoring closely

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  3. Firstly, Mr Market always pays up for growth,
    Secondly, value investors would only step up when valuations are compelling. For retail stocks, the relevant valuation metric is price to sales ratio if you are looking for compelling valuations.
    Thirdly, Parksons is heavily in EM which have a compelling story in hot growth and rise of the middle class. Yet Parksons can't capitalise on that, which tells you that there are execution issues.

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  4. Hi minimax,

    Thanks for your advice. Indeed, valuation is not compelling. Just fair.

    More headwinds since stores need 2 years gestation period.

    But I do think we can look forward to 20-30% growth over the next 2-3 years.

    I am not bound by value investing, whatever make money, I go. It is trading at less than 15 PE but I expect 15-20% growth over the next few years.

    If 2014 is bad, then the growth will be more spectacular fr 2015 onwards

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