Parkson: Finally, the loss surfaced

Result Update

For QE30/6/2015, Parkson reported a net loss of RM91 million on the back of a revenue of RM859 million. Revenue dropped 18% q-o-q in the absence of major festivities. Parkson's Malaysian operations were further affected by the soft consumer sentiments following the introduction of GST on 1 April 2015. The lower sales performance and loss on an exceptional item of RM149 million have resulted in the Group reporting a loss before tax of RM156 million.

The loss on the exception item is the contingent compensation payable to the property owner for the closure of a store by Parkson Hanoi Co Ltd. If you read the explanation below, it seems that this amount may be reversible in the next financial year because Parkson Hanoi Co Ltd has now ceased to be a subsidiary of Parkson Retail Asia Ltd, which is a subsidiary of Parkson. While investors may take comfort in this potential reversal, the question to ask is this: Wouldn't the selling price of Parkson Hanoi Co Ltd be reduced by the potential loss. If so, the exceptional loss is still a loss however it is presented.


Diagram: Note on Exceptional Loss


Table 1: Parkson's last 8 quarterly results


Chart 1: Parkson's last 34 quarterly results 

Valuation

Parkson (closed at RM1.12 yesterday) is now trading at a PER of 28 times (based on last 4 quarters' EPS of 4 sen). This elevated PER is due to exceptional circumstances which may or may not continue. Its PBR of 0.5 time only (based on NTA od RM2.43 as at 30/6/2015). Based on low PBR, Parkson could be an attractive stock for contrarian investing.

Technical Outlook

Parkson is fast approaching its low of RM0.90 recorded in 2003. Yesterday it made an intraday low of RM1.01 before rebounding. With this set of poor result, a retest of the lows - yesterday's low or 2003 low - cannot be ruled out.


Chart 2: Parkson's monthly chart as at Aug 26, 2015  (Source: ShareInvestor.com)

Conclusion

Based on poorer financial performance & bearish technical outlook, Parkson is a stock to be avoided for now. However, those with a contrarian streak may consider this stock for long-term investment at the present depressed price while those who had bought earlier, should hold onto their investment.

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.