Parkson to face tough operating environment in China
KUALA LUMPUR: Kenanga Investment Research expects the Parkson group, which saw its Hong Kong subsidiary purchase a mall in China for 1.42bil renminbi (RM800mil), to continue to face a tough operating environment in the world’s second largest economy.
The research house said on Tuesday the weak consumer sentiment would be due to the economic slowdown, particularly in the China market, which accounts for the crux of its earnings.
“Coupled with the intense competition from online shopping and oversupply of retail space, we believe it would take a longer-than-expected period of time for Parkson to reverse its same store sales growth’s declining trend given that these stores have reached maturity,” it said.
At 4.03pm, Parkson was up two sen to RM2.44. There were 216,600 shares done at prices ranging from RM2.37 to RM2.44.
On Monday, Parkson Holdings Bhd announced its 52.10% owned Parkson Retail Group Ltd (PRG) in Hong Kong was buying the Qingdao Shopping Mall in China for 1.42bil renminbi.
It is buying the mall at Laoshan district of Qingdao City, which is under construction, from Shanghai Industrial Qingdao Development Co. The mall is part of a fully integrated commercial development project, known as Beer City Project.
Kenanga Research said it was not surprised by this latest corporate development by Parkson as its management had guided on the construction of the Qingdao and Tianjin malls to be completed somewhere in 2HCY2015.
“This acquisition is also inline with management strategy to build stand alone shopping malls in China in a bid to revive the flagging fortunes of Parkson China apart from its other initiatives, including consolidation of its portfolio of stores in China, and improving merchandising mix via brand collaboration.
“PRG’s costs pressure due to higher rentals and hence downwards margins pressure is expected to be mitigated by having its own mall. This acquisition can be funded by PRG’s cash of more than 1bil renminbi as at Sept 30, 2014,” it said.
Kenanga Research said it was maintaining its Market Perform recommendation on Parkson with an unchanged sum-of-parts target price of RM2.63.
Welcome to Recruiter Asia, Asia's number one forum for recruiters and jobs in Asia. All the recruitment news across the region and a platform for firms to promote their businesses and update the market on their successes and growth. A value insiders guide to the Asian Job Market and perfect reading for anyone thinking of joining us in the worlds most exciting cities.