Parkson Holdings Bhd ('Parkson') is an investment holding company, with the main subsidiaries involved in the operation of department stores in the People’s Republic of China, Malaysia & Vietnam. As at 30/6/2008, the Group has a total of 76 stores located in these 3 countries.
Recent Financial results
Parkson has recently announced its results for the 2Q2009 ended 31/12/2008. Its net profit increased by 73.2% q-o-q or 72.3% y-o-y to RM104 million while its turnover increased by 10.3% q-o-q or 12.6% y-o-y to RM685 million. The improvement of both the top-line & bottom-line over the preceding quarter's was due to the festive & holiday seasons while the improvement over the previous corresponding quarter's was due to same store sale growth as well as new stores opened.
Financial Position
Parkson's financial position is mixed as at 31/12/2008. Its current ratio is satisfactory at 1.6 times while gearing ratio (defined as Bank Borrowings divided by Shareholders' Funds) is quite high at 0.9 times. The Bank Borrowings, which stood at RM2.0 billion as at 31/12/2008, was used to finance its aggressive store expansion program.
Importance of the Chinese operation
Parkson's Chinese operation is carried on by its Hong Kong-listed 53.68%-owned subsidiary, Parkson Retail Group Ltd. For FY2008, this division accounts for 69% of its turnover & 84% of its total assets employed. Its significance was clearly amplified on January 6th this year, when Parkson Retail Group Ltd announced in Hong Kong that it had experienced a lower same store sale ('SSS') growth of between 7% and 8% for the QE31/12/2008 (as compared to its earlier projection of 12% to 13%). This immediately prompted a sharp sell-off in Parkson which resulted in the share price dropping 70 sen the next day (go here).
China's economy on the mend?
The Chinese economy seems to be recovering. The Shanghai Stock Exchange's SSEC has broken above its immediate downtrend line in December 2008. In February this year, the 50-day SMA had crossed above its 100-day SMA- giving a mini-Golden Cross. A sustained recovery for the Shanghai stock market & the Chinese economy will augur well for Parkson's Chinese operation.
Chart 1: SSEC's daily chart as at March 13, 2009 (Source: Stockcharts.com)
Parkson's technical outlook
Parkson's share price seems to have broken above its downtrend. Further recovery will result in its 10-week SMA crossing above its 20-week SMA. This would signal the beginning of the next upleg for the stock.
Chart 2: Parkson's weekly chart as at March 13, 2009 (Source: Quickcharts)
Conclusion
Parkson could be a stock to ride on the Chinese economic recovery. Based on tentative signs of economic recovery there, we can expect consumer spending to improve. This will benefit Parkson which operates department stores there. Technically, the stock appeared to have made a bottom. A good entry level is at RM3.20-30.
PS- I have just added in my comment on Parkson's Financial Position, which was accidentally left out earlier.
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