Results Note

27 February 2020

Parkson Holdings Bhd NOT RATED Price: RM0.185 1HFY20 Sinks Deeper; Cease Coverage Target Price: RM0.145 ↓ By Wan Mustaqim Bin Wan Ab Aziz l [email protected]

1HFY20 core losses expanded to RM138.5m compared to Share Pr ice Performance core losses of RM48.9m in 1HFY19, largely below both our 0.30 and consensus estimated core profit of RM8.5m each due to higher-than-expected impact of MFRS 16 and lower same store sales across all markets. We revised our FY20E-21E 0.25 earnings to core losses of RM380.9m-RM270.9m from core profits of RM8.5m-RM9.9m to reflect the higher-than- 0.20 expected net impact of MFRS 16 as well as the severity of Covid-19 outbreak impact on its main China operation. As we 0.15 are ceasing active coverage, the stock is now a NOT RATED with our last SoP-derived TP of RM0.145 (from RM0.220). 0.10 1HFY20 sunk deeper. 1HFY20 core losses expanded to RM138.5m compared to core losses of RM48.9m in 1HFY19, largely below both our KLCI 1,495.19 and consensus estimated core profit of RM8.5m each due to higher-than- YTD KLCI chg -5.9% expected impact of MFRS 16. No dividend was declared, as expected. YTD stock price chg -15.9% YoY, 1HFY20 core losses expanded to RM138.5m compared to core losses of RM48.9m in 1HFY19 largely due to: (i) higher MFRS 16 net Stock Information impact of -RM53.5m, as well as (ii) weaker sales (-5%). The lower sales Shariah Compliant Yes came from negative overall SSSG from: (i) China (-3.9% vs. -3% in Bloomberg Ticker PKS MK EQUITY 1HFY19) amidst stiff competition (ii) Malaysia (-1.0% vs. 1HFY19 of Market Cap (RM m) 197.4 +5.2%) as last year’s sales benefited from the zero-rated tax holiday, and Shares Outstanding 1,067.2 (iii) Indonesia (-8.0% vs. 1HFY19 of -0.7%), mainly due to severe 52-week range (H) 0.30 competition faced in the market and generally a softer consumer 52-week range (L) 0.18 spending sentiment while certain store/mall were undergoing renovation 3-mth avg daily vol: 567,717 work which also impacted the traffic flow. Vietnam’s SSSG rates (-11% Free Float 31% vs. 1QFY19 of -19.6%) continued to stay in the red due to intense Beta 1.2 competition, especially with the launch of Vincom Center Landmark 81 Mall. Nevertheless, 53%-owned Parkson China recorded higher operating efficiencies, reporting an operating profit of RM91m (+213%) Major Shareholders and the Malaysia operation recorded an operating profit of RM28m, Tan Sri William Cheng 26.9% turning around from an operating loss of RM1m in 1HFY19, which more Amsteel Mills 16.6% than offset other region’s losses to record an EBIT of RM83m. Urusharta Jamaah Sdn Bhd 9.9%

QoQ, 2QFY20 sunk deeper into core losses of RM93.9m, compared to Summary Earnings Table core loss of RM44.6m despite seasonally stronger year-end sales (+11%) on higher finance costs (lease finance charges recognition under MFRS FYE Jun (RM‘m) 2019A 2020E 2021E 16), as well as higher tax expenses. Turnover 4,031.9 4,048.9 4,070.3 EBIT 100.3 145.2 145.9 Outlook. Management noted that the recent Covid-19 outbreak is PBT -25.4 -273.7 -150.6 affecting footfalls to its retailing stores, and the group will continue to NP/ (NL) -132.6 -380.9 -270.9 implement measures which include: (i) optimising its retail format, CNP/ (CNL) -63.7 -380.9 -270.9 expanding product and services offerings, and (ii) minimising stores Consensus (NP) 8.5 9.9 losses via optimising store effectiveness and efficiency. As of December Earnings Revision <100% <100% 2019, the group’s department stores network comprises 41 stores in EPS (sen) -5.8 -34.8 -24.8 China and 62 stores in South-East Asia, including Malaysia (43 stores), EPS growth <100% <100% -29% Vietnam (4 stores), and Indonesia (15 stores). Note that, Parkson has NDPS (sen) - - - ceased its Myanmar operation with the closure of its sole store in BV/Share (RM) 3.03 2.66 2.39 2QFY19. PER (x) N.M -0.5 -0.7 We revised our FY20E-21E earnings to core losses of RM380.9m- P/BV (x) 0.1 0.1 0.1 RM270.9m from core profits of RM8.5m-RM9.9m to reflect the higher- Gearing (x) 0.2 0.2 0.0 than-expected net impact of MFRS 16 as well as the severity of Covid-19 Net Dvd Yield (%) - - - outbreak impact on its main China operation for the rest of the financial year. Cease coverage. Overall, we remain cautious over the group’s alarming expanding losses over the years against the backdrop of an unfavourable business landscape especially for its PRA operation which is constantly at risk. Should sentiment or outlook improve, we may seek to resume coverage in the future. The stock is now a NOT RATED (from MARKET PERFORM), with our last SoP-derived TP of RM0.145 (from RM0.220).

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Parkson Holdings Bhd Results Note

27 February 2020

Result Highlight 2Q 1Q QoQ 2Q YoY 6m 6m YoY FYE: June (RM m) FY20 FY20 Chg FY19 Chg FY20 FY19 Chg Turnover 987.4 887.4 11.3% 1054.2 -6.3% 1874.9 1978.3 -5.2% EBIT/ (LBIT) 40.0 43.2 -7.6% 20.5 94.8% 83.2 -8.4 >100% PBT/ (LBT) -94.6 -54.4 <100% -3.5 <100% -148.9 -45.1 230.3% Taxation -39.9 -11.2 <100% -50.6 -21.3% -51.1 -69.5 -26.5% PATAMI / (LATAMI) -81.1 -44.6 81.7% -16.6 <100% -125.7 -59.6 <100% Core PATAMI / (CL) -93.9 -44.6 <100% -5.9 <100% -138.5 -48.9 <100% Core EPS/ (LPS) (sen) -8.6 -4.1 <100% -0.5 <100% -12.7 -4.5 <100%

EBIT margin 4.0% 4.9% 1.9% 4.4% -0.4% PBT margin N.M N.M N.M -7.9% -2.3% NP margin N.M N.M N.M -6.7% -3.0% Effective tax rate N.M N.M N.M -34.3% -154.2%

Source: Bursa Malaysia, Kenanga Research

Segmental Breakdown FY June (RM m) 2Q 1Q QoQ 2Q YoY 6m 6m YoY Segment Revenue FY20 FY20 Chg FY19 Chg FY20 FY19 Chg

Malaysia 253 205 23.8% 286 -11.6% 458 522 -12.2% China 672 631 6.5% 697 -3.6% 1,303 1,324 -1.6% Vietnam & Myanmar 13 9 37.1% 18 -31.4% 22 35 -38.1% Indonesia 37 30 24.0% 38 -2.8% 67 69 -3.1% Others 13 13 -4.0% 14 -12.7% 26 29 -10.4% Segment Revenue 987 887 11.3% 1,054 -6.3% 1,875 1,978 -5.2%

Malaysia 28 0 >100% 17 59.9% 28 (1) >100% China 35 56 -37.3% 19 81.6% 91 29 213.0% Vietnam & Myanmar (2) (6) -67.1% (5) -58.7% (9) (12) -26.8% Indonesia (1) (4) -88.3% (1) -56.1% (5) (7) -32.5% Others (20) (2) <100% (10) <100% (22) (18) 26.7% Segment profit 40 43 -7.6% 21 94.8% 83 (8) >100% (operating)

Malaysia 11% 0% 6% 6% 0% China 5% 9% 3% 7% 4% Vietnam & Myanmar N.M N.M N.M N.M N.M Indonesia N.M N.M N.M N.M N.M Profit margin (%) N.M N.M N.M N.M N.M

Source: Bursa Malaysia, Kenanga Research

Sum-of-Parts Valuation No of shares PHB's effective Value (RM m) Valuation methodology stake stakes Based on share price of SGD 0.008 Parkson Retail Asia (PRA) 67.60% 455.5 11 (previously SGD 0.022) Based on share price of HKD 0.550 Parkson Retail Group (PRG) 53.10% 1,398.94 408 (previously HKD 0.620) Net debt at holding level -71 Total SOP 348 Holding Co. discounts (55%) -191 No.of shares 1,093 Target price (RM / share) 0.145 Source: Bloomberg, Kenanga Research

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Parkson Holdings Bhd Results Note

27 February 2020

Peer Comparison

Core Earnings ROE Net Div Name Revenue Growth PER (x) - Core Earnings PBV (x) Last Price Market Cap Shariah Current Growth (%) Yld (%) Target Price Rating (RM) (RM'm) Compliant FYE 1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 1-Yr. 1-Yr. (RM) Hist. Hist. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. F&B AND RETAIL 7-ELEVEN MALAYSIA HOLDINGS BHD 1.40 1,610.3 N 12/2019 12.4% 4.9% 13.6% 5.5% 33.6 29.6 28.1 23.3 22.6 77.5% 2.9% 1.35 MP AEON CO. (M) BHD 1.30 1,825.2 Y 12/2020 1.3% 1.3% 1.5% 2.3% 16.7 16.5 16.1 1.1 1.0 6.4% 3.1% 1.65 OP AMWAY (MALAYSIA) HOLDINGS BHD 5.50 904.1 Y 12/2019 -1.0% 2.0% 1.4% 3.7% 17.7 17.4 16.8 4.1 3.9 23.0% 5.0% 5.10 MP DUTCH LADY MILK INDUSTRIES BHD 43.88 2,808.3 Y 12/2020 1.7% 1.7% 2.5% 2.3% 26.6 26.0 25.4 19.4 15.4 66.2% 2.5% 43.85 MP FRASER & NEAVE HOLDINGS BHD 31.14 11,421.5 Y 09/2020 2.4% 3.0% 2.5% 6.0% 27.2 26.5 25.0 4.5 4.2 16.4% 2.1% 35.20 OP HAI-O ENTERPRISE BHD 1.95 566.1 N 04/2020 1.7% 2.3% -24.9% 8.7% 11.9 15.9 14.6 1.8 1.8 11.4% 5.1% 1.50 UP MYNEWS HOLDINGS BHD 0.870 593.5 N 10/2020 24.3% 17.0% 11.2% 20.8% 22.1 19.9 16.5 2.0 1.8 9.5% 1.1% 1.10 MP NESTLE (MALAYSIA) BHD 141.70 33,228.7 Y 12/2020 4.1% 1.9% 6.6% 3.7% 51.0 47.8 46.1 49.6 48.5 102.5% 2.0% 124.50 UP PADINI HOLDINGS BHD 3.24 2,131.6 Y 06/2020 0.5% 4.8% 3.2% 5.6% 13.6 13.2 12.5 2.9 2.6 20.6% 3.5% 3.70 OP PARKSON HOLDINGS BHD 0.185 197.4 Y 06/2020 0.4% 0.5% -16.7% -140.6% N.A. N.A. N.A. 0.1 0.1 -12.3% 0.0% 0.145 Ceased POWER ROOT BHD 2.33 953.6 Y 03/2020 13.3% 10.5% 53.9% 12.3% 27.5 18.5 17.0 4.2 3.7 21.8% 3.9% 2.75 OP QL RESOURCES BHD 8.20 13,304.0 Y 03/2020 10.9% 11.6% 13.1% 9.6% 61.4 54.3 49.5 6.6 6.1 12.1% 0.7% 8.30 MP SPRITZER BHD 2.20 461.9 Y 12/2020 1.4% 3.1% 3.2% 3.4% 14.8 14.3 13.9 1.1 1.1 7.6% 2.3% 2.45 OP Simple Average 5.7% 5.0% 5.5% -4.4% 27.0 25.0 23.5 9.3 8.7 27.9% 2.6%

SIN BRITISH AMERICAN TOBACCO (M) BHD 14.86 4,243.0 N 12/2020 -11.0% -3.0% -5.6% -4.3% 11.7 12.4 13.0 9.9 9.6 78.2% 7.7% 16.70 OP CARLSBERG BREWERY MALAYSIA BHD 35.76 10,933.5 N 12/2020 13.8% 9.2% 12.0% 9.5% 37.9 33.8 30.9 66.3 64.4 200.4% 2.9% 29.00 UP HEINEKEN MALAYSIA BHD 28.36 8,567.5 N 12/2020 13.0% 4.0% 16.1% 5.6% 27.4 23.6 22.3 23.9 22.0 97.3% 3.9% 28.90 MP Simple Average 5.3% 3.4% 7.5% 3.6% 25.7 23.3 22.1 33.3 32.0 125.3% 4.9%

Source: Bloomberg, Kenanga Research

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Parkson Holdings Bhd Results Note

27 February 2020

Stock Ratings are defined as follows:

Stock Recommendations

OUTPERFORM : A particular stock’s Expected Total Return is MORE than 10% MARKET PERFORM : A particular stock’s Expected Total Return is WITHIN the range of -5% to 10% UNDERPERFORM : A particular stock’s Expected Total Return is LESS than -5%

Sector Recommendations***

OVERWEIGHT : A particular sector’s Expected Total Return is MORE than 10% NEUTRAL : A particular sector’s Expected Total Return is WITHIN the range of -5% to 10% UNDERWEIGHT : A particular sector’s Expected Total Return is LESS than -5%

***Sector recommendations are defined based on market capitalisation weighted average expected total return for stocks under our coverage.

This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies.

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KENANGA INVESTMENT BANK BERHAD (15678-H) Level 17, Kenanga Tower, 237, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia Telephone: (603) 2172 0880 Website: www.kenanga.com.my E-mail: [email protected]

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