PublicInvest remains ‘neutral’ on Parkson, awaits clarity on China unit sale

PETALING JAYA: PublicInvest Research is keeping its “neutral” call on Parkson Holdings Bhd with an unchanged target price of 72 sen, despite the group’s proposal to dispose of its entire interest in its China subsidiary, pending further clarity on the transaction and EGM for shareholders’ approval.
In a report yesterday, PublicInvest analyst Nor Asilah Amran said prospects in the region remain challenging, in view of weak spending and consumption pattern coupled with stiff competition, which also comes from rapid development of e-commerce platforms.
“China (the subsidiary), to recap, for FY16 reported an operating loss of RM90.7 million, primarily due to higher costs from its new business ventures and new stores in this ramp-up period.
“Parkson is also stepping up its efforts to keep relevant, having launched a new mobile shopping application, Parkson Plaza in June to leverage on digital platforms in enhancing customers’ shopping experiences,” she added.
On Tuesday, the group, which owns 54.67% of Parkson Retail Group (PRG), announced the disposal of its 100% interest in Beijing Huadesheng Property Management Co Ltd to Shenzhen Qianhai Tulan Investment Centre (LLP) and Shanghai Changkun Investment Management Co Ltd.
Beijing Huadesheng is involved in property development and property investment.
Following the disposal, the group’s earnings is expected to be higher by RM300 million or 28 sen per share, while its net assets on a proforma basis, will be higher by RM300 million (29 sen per share) as at June 30, 2015.
Nor Asilah said PRG’s directors saw the disposal as an opportunity to unlock the value of the disposal subsidiary at an attractive price, in light of the challenging operating environment, noting the department store has been loss-making since opening in December 2010.
She said the disposal would also see the group cease any investment resources to a loss-making operation, with the proceeds to improve its financial position.
Nor Asilah noted that the group would use the net proceeds of approximately RMB1.9 billion to enhance and expand its fashion and food and beverage brands, while exploring new business investment opportunities to expand its revenue streams.