Parkson Retail Asia

Parkson Retail Asia woefully missed estimates as it reversed into 4QFY15 net loss of $59.8m from a net profit of $3m a year ago. This erased prior three quarters of gains to push FY15 into net loss of $34.7m compared to FY14’s net profit o f $34.4m.

For the last quarter, revenue slumped 14.6% to $84.7m as contraction in same store sales in Malaysia (-17%) and Vietnam (-7.2%) negated gains in Indonesia (+12%) as well as first year contributions from its Myanmar operations. Reflecting the tough retail environment, core EBITDA margin dipped to -1.5% from 5% the previous year.

Geographical analysis:
Malaysia - Operations was largely affected by an overall weakness in the domestic retail space, which was aggravated by the implementation of a GST tax in Apr ‘15, prompting consumers front-loaded their purchases before 4QFY15. Consequently, revenue declined 22.3% to $58.6m, while pretax profit slipped into a marginal loss of $0.3m. (4QFY14 profit of $6.5m).

Vietnam - Weak discretionary spending compounded by the entry of competing retailers led to the 7.2% slump in same-store sales although overall revenue jumped 11.5% to $11.2m. Pretax loss narrowed to $1.7m (4QFY14: -$3.5m), due to start-up costs of new stores, as same stores incurred just a small loss of $0.2m.

Indonesia - The sole bright spot as consumer sentiment remained buoyant with revenue climbing 8.4% to $14.4m. However, pretax loss widened to $1m, dragged down by the $1.5m loss from new stores. On a same store basis, its operations turned around from a $0.2m loss in 4QFY14.

Myanmar - The new store in Yangon saw a ramp-up in sales to $0.5m after its first year of operations and almost broke even (4QFY14: -$0.4m).

Pretax performance deteriorated into whopping loss of loss of $77.7m (4QFY14: $1.9m profit) due to several non-recurring liabilities including contingent expenses ($64.8m) relating to the early termination of a lease at Landmark 72, Hanoi as well as impairment of deposits ($8.2m) due to two managed stores in Ho Chi Minh City.

Excluding these one-off items, pretax profit would have declined 5.5% on a same store basis and down 3.4% on both same store and same currency basis.

A reduced final DPS of 2¢ (4QFY14: 2.5¢) was declared, taking the full year dividend payout, including a special interim DPS of 4¢, to 6¢ (FY14: 5.5¢).

Balance sheet was solid with net cash of $126m, making up 48% of market cap.

Moving forward, management expects sluggish sales at its Malaysian operations to be dampened by the GST and depreciating ringgit. Nevertheless, it plans to open four stores in Malaysia in FY16, with a total gfa of 70,394 sqm.

Its Vietnam operations are set to be impacted by increased competition even as the economic environment picks up. But Indonesia and Myanmar should be supportive, underpinned by robust domestic demand and growing middle class. Three stores totaling 32,077 sqm, will be opened in Indonesia in FY16.

In addition, the group is looking to expand into Cambodia with its first store (36,500 sqm) in Phnom Penh commencing operations in 3QFY16.

At current prices, Parkson Retail is trading at 1.8x P/B.