Sunday, May 12, 2013

Should one relook at Parkson now?

It comes at a time when stocks are getting more and more expensive, but Parkson is moving the opposite direction. I once used to hold AEON Malaysia and at that point of time it was way cheaper than Parkson - perhaps half the size in terms of market cap i.e. AEON to Parkson. Surprisingly, slightly more than 1 year later, AEON's market cap is now larger than Parkson.

Share price of Parkson over the last 1 year

Of course, one may say that AEON is performing well - no doubt. While Parkson is sort of having a drop in terms of its performance. I however would be asked that if given the choice, which company would I own. AEON is only with its Malaysia's operations. Parkson is the holding company that holds the group's China's and South East Asia's operations. No doubt in terms of profitability AEON is slightly ahead of Parkson today. But Parkson vs AEON Malaysia is a different ballgame.

I like AEON's business in Malaysia. I like Parkson as well. But if you invest into Parkson, it is the one that holds the brand. AEON Malaysia is the licensee to the AEON's brand in Japan. If any wants to buy AEON Malaysia, they would only be buying the Malaysian outlets, not the brand - pretty much like when AEON Japan bought Carrefour's outlets in Malaysia. It currently has the rights to the brand in Malaysia. That's all.

If one is to own Parkson - they are not just buying the outlets and its location. They are buying the business. Given the choice, a business would definitely gain more value if the earnings are at par.

Now, what makes Parkson's share price trading sluggishly? Its performance over the last 12 months. The poorer performance are due to 2 main factors - competition and expansion.

The retail segment is a very competitive business. Besides competing against each other - AEON, Parkson, Tesco, Giant - company like Parkson is competing against individual brand retailers which have their own stores such as Gap, TopShop, Uniqlo, H&M to name a few. But a brand and retailer like Parkson has its own strength. Imagine a mall without the like of Parkson or Isetan. The malls would call them anchor tenants. Malls need to work with anchor tenants to bring the crowd. Hence, malls need companies like Parkson and Isetan and as such these players normally will provide a better terms as against for example you want to open your own Bally shoes store. The rental per sq ft would be different.

AEON, nowadays prefer to open their own stores, buy their own land and build it, be the mall itself. So are Tesco and Giant. Parkson it seems has started to own its first mall in Setapak, Kuala Lumpur. I believe that it may be looking at this model much more in future. But at the moment, malls still need them.

On expansion, Parkson is now aggressively expanding in South East Asia besides having the largest part of its business in China. This Chinese operations is of value - believe me. The expansion in South East Asia would have caused some cashflow to be used for capital expansion sake, but if one if to buy such a business, I think it may be worth it as if it manages to do well in Indonesia and Vietnam, Parkson may be up for a re-rating despite it being a Malaysian owned and branded supermarket chain.

Due to this, I am taking a plunge by buying 2200 units for the portfolio.

Purchased at RM4.22 per share

23 comments:

keano said...

hi Felicity,

what do you think about Digi now that the share price have retreated from RM5 mark?
I am thinking bout entering but the 700million capex is going to to reduce the dividend of Digi. Do you think that Digi is still worth investing in?

felicity said...

DIgi will be a solid company but not particularly interesting at this point

Big Sea said...

In about year 2000, TSTORE is about the same size of AEON in terms of revenue. Today TSTORE is only half of AEON in revenue.
In terms of PBT, they are miles apart now.

An important quality of the management team is their risk appetite and risk mitigation capability. The lack of ambition cost TSTORE the growth opportunity.

Parkson is losing out in China growth. Intime is doing better. Expansion in S.E.A was covered a lot in the media but are they serious about the expansion ?

The other question I have for Parkson is their capabilty to attract talent. I saw in the newspaper few years back featuring William Cheng with daughter and wife, saying that they are preparing his daughter to take over Parkson eventually. I hold Parkson that time and I was rather pissed off. I will not work for a company with this type of succession planning in place.





felicity said...

Agreed and taking note. :)

Heineken Pilsener said...

Parkson was once part of my portfolio. It has a good balance sheet, cashflow and a capable management team. Parkson, in my opinion, is going to be bigger in SEA in 10 years time. Perhaps Parkson is currently undervalued due to slower SSS. One can buy Parkson with the same thesis at RM 4.60, 4.50, 4.40 or 4.30.

Felicity, what are the catalysts that would make the market rerate Parkson?

Value Investor said...

Parkson is still a core holding in my portfolio as it is one of the very few Bursa listed stocks that taps into the growing middle income population in China, Malaysia, Indonesia, Vietnam and now Sri Lanka.

However, Parkson is facing some "headwinds" in terms of slowing SSS due to increasing competition especially in China. The other worry is that its "asset light" business model is also its weakness as Parkson leasee/rent most of its retail/dept stores. If you study its China Retail Group P&L, one of the fast increasing cost component is its its rental cost. Unless it can grow its revenue faster that its cost, Parkson will see its gross profit margin narrowing.

However, its concessionaire sales business model is one of the best as its builds up its payables from sales made by brands renting its stores and only needs to pay them 1-2 months down the road, allowing the company roll its cash flow and use it mostly for working capital purpose. Initially, I didn't realised that and see it as a weakness until I heard its new CEO (succeeding Albert Cheng) mentioned it in a briefly.

In summary, if Parkson can continue to grow by openning new stores in the right location and further invest in more malls like the Setapak mall with Melaka mall opening next year, I believe it is still one of the best retail stocks to hold on Bursa.

felicity said...

Great one Value Investor. Ya I am aware of the rental costs in China. the costs side you would not believe it. Just did a case in Beijing. The apartment rental is CRAZY.

AdCool said...

I have accumulating Parkson shares for almost a year now. The key reason I chose Parkson is due to its venture into SEA markets especially Indonesia and Vietnam. Both these countries have lot of room for growth and majority of the citizen too have lot of room to improve their wealth and economic standing. They are just like China back in the 2000.

Comparing with Aeon, Parkson is targeting different segment of the market. Just visit any Parkson outlets and you will find that their concepts are serving the middle income group. And this middle income group is growing in SEA. That's the potential that I see in Parkson.

Dividend may not be that exciting but hey, it s slight beating the FD rate and there's a potential for higher capital return.

felicity said...

New market is always new challenge. Wal-Mart had failed in Japan despite its size. Tesco is failing in US. For the market to rerate Parkson, it will need to proof that it can do well in the new markets it is into, while at the same time continue to grow in the larger markets it is already in.

That is the challenge.

Multi Bagger said...

I have been waiting over the last 2 months when is the right time to pick up Parkson in my portfolio as it has been dropping, of course, its a million dollar question.

On succession planning by PLC, I personally think as long as the person is capable of the job,let him or her do it disregard whether related or not. I see cases where 2nd or 3rd generation of the founders bring a company to new height. Of course, there are also cases where they "destroy" the empire built.

Parkson has changed leadership lately which I believe retail sales is facing tough ompetition in China (just like the case of Li Ning).

I believe the expansion strategy taken by Parkson is right and they have the right and proven business model, the challenge now is - execution. I guess its time for me to enter before too many people read this article by Felicity.

felicity said...

I doubt this will be a multi-bagger though...

Multi Bagger said...

haha..2 bags enough d

山下聖人 said...

Parkson to me consider very cheap @ RM4.20, it has been in above RM5-6 during the time it enter China and expanding crazy like hell.

But as normally happen, the China market for Parkson slows down facing fierce competition from the Taiwanese retailer. They are much more higher standard from my point of view. Anyway, I management style might be reason it slows down also?

Parkson is the only stock I agreed with TTB in ICAP. I like the story of growth in SEA, it is heading the correct direction, just how fast and serious Parkson is expanding them?

Another story I like is the Mall they built themselves, and planning eventually to have REITS in 5 years time. Have you been to the mall>? I personally like it, it is like MidValley style,which I personally prefer shopping.

Black Ink said...
This comment has been removed by the author.
Black Ink said...

Felicity, you're spot on with your statement - "new market, new challenge"

Tesco spent 20 years investigating the US market before taking the plunge and still managed to mess it up.

http://www.guardian.co.uk/business/2012/dec/09/fresh-not-easy-tesco-british-failure-america

Leadership and Management are the key to any company successfully executing this. The question is - does Parkson currently have the right people to pull this off?

The market is saying no, and I tend to agree.

Value Investor said...

Parkson Retail Group, Parkson listed subsidiary in HKEX released its 1st Qtr 2013 results yesterday.

No signs of recovery yet with SSS dropped again. This is worrying as 1st Qtr is normally a good quarter due to the CNY celebrations in China. Profit margins dropped further due to more than 25% increase in staff and rental cost. This is a worrying trend as long serving CEO, Albert Cheng is also leaving this year.

Parkson Asia (listed on SGX)'s results are also pretty flat due to underperformance in Indonesia.

All in, expect a lower 3rd Qtr 2013results for Parkson Holdings expected this week or early next week.

felicity said...

Thanks. But I guess, expanding is the best thing to do. All of them are either Malaysian fashion retailer or retailers like Parkson.

AdCool said...

Due to such weakness release, Parkson has dropped 21 sen today itself. It's a huge drop though.

Panic selling?

felicity said...

results from subsidiaries does not seem good...:(

Giap Seng said...

For retail business in China, the competition is getting tougher. Not only on the increase of cost, but the may revenue shrink when China economy slows down in the immediate term.

Another reason is for China, as the new political leadership takes over, they promise to tackle the corruption problems. As we all know, the corruption in China was really bad, where people use luxurious items (eg handbags, expensive clothes, cosmetics, etc) as gift during festive seasons to bribe. Now that the political leaders warn on this "gifting" practise, Parkson would eventually get a hit as the politicians cannot accept these discretionary items so openly.

Giap Seng

Fabwon said...

Hi Felicity,

Parkson's share price has been on a declining trend and never seems to recover from its bottom. I wonder considering such situation, will you consider to average down your holdings?

JK Holdings said...

It is already dropping 30% of your purchase price , it's time to do cost averaging .

Melvin G said...

Yea looking forward to your response regarding to parkson