Parkson: Early Termination Can Be Painful!

Parkson's plan for turnaround involved its Chinese operation streamlining its large branch network. That plan maybe more problematic than first anticipated. It has just been reported that one of the branches that was closed, would have to pay compensation to the landlord for early termination. That was decided by China International Economic & Trade Arbitration Commission with the amount of damages awarded of RMB140 million (or, RM83.82 million) against Parkson's Chinese unit, PRDC (a subsidiary of Parkson Retail Group Ltd which is in turn a subsidiary of Parkson).

The Edge Daily reported:

According to an attached statement by PRGL, the approximate 140 million yuan payable to the landlord represents about 57% of the audited net profit of the group for the financial year ended December 2014 (FY14). PRGL also said based on a preliminary review of its unaudited consolidated management accounts for the two months ended Feb 28, 2015, it does not expect its operating results for the first quarter of 2015 to be able to cover the impact from the arbitral award.

Hence, PRGL expects the profit of the group for the three months ended March 2015 will decline “significantly” compared with the corresponding period in 2014.

(The asme news is also carried in The Sun Daily.)

If the main operating unit of Parkson (PRGL) were to report a loss, the psychological impact on Parkson stock price would be fairly significant. I would not be surprised if Parkson were to break the RM2.00 again. Its next support could be at RM1.70 but its really strong support is at RM1.25.

For now, it would be best to adopt a wait-&-see approach on Parkson. Even if it can stabilized or rebounded from its support level, we cannot be sure how the management would carry out its turnaround plan given the additional cost to be factored into the calculation.


Chart 1: Parkson's weekly chart as at Mar 31, 2015 (Source: Share Investor)


Chart 2: Parkson's monthly chart as at Mar 31, 2015 (Source: Share Investor)

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Parkson.