Parkson strengthens network to spur growth

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KUCHING: Parkson Holdings Bhd’s (Parkson) business has huge growth potential as the company remains committed to its strategy to strengthen its retail network.

ON TRACK: Parkson Holdings Bhd strong sales contributed from its overseas operation in the Chinese and Vietnamese market will enable the retailer to meet its earnings forecast. Picture shows one of the outlets of Parkson Holdings Bhd located at Ho Chi Minh City in Vietnam.

ON TRACK: Parkson Holdings Bhd strong sales contributed from its overseas operation in the Chinese and Vietnamese market will enable the retailer to meet its earnings forecast. Picture shows one of the outlets of Parkson Holdings Bhd located at Ho Chi Minh City in Vietnam.

HwangDBS Vickers Research Sdn Bhd (HwangDBS) in a research report noted that Parkson will be exploring new locations and acquiring minority interest stores in countries that the retailer is already operating in, while looking for potential merger and acquisition (M&A) opportunities to beef up its foothold.

It pointed out that Parkson was dedicated to adding eight to 11 outlets per year. It said that the group targeted to expand retail space by 15 per cent annually. Meanwhile, the research firm observed that Parkson’s medium focus is on the Chinese and Vietnamese market, given rising consumer affluence and strong domestic demand growth in both markets.

As for Parkson’s strategy in the Vietnamese market, the research firm believed that Parkson is targeting to add one new department store in 2010 and four new stores in 2011.

HwangDBS highlighted that for retail malls that would be owned by Parkson in the Vietnamese market, it would have to tie-up with local partners but the company would acquire a controlling stake.

The research firm said presently Parkson had presence in three major cities in Vietnam namely, Ho Chi Minh City, Hanoi and Hai Phong. It noted that people in these three cities had stronger purchasing power adding that strong growth in the market would come from the country’s population of about 86 million people.

It also believed that there were more opportunities for Parkson to grow in the Chinese market given the low penetration rate in the retailing business.

On the company’s plans to increase same-store-sales growth, HwangDBS noted that Parkson would consistently assess merchandise pricing, explore product mix and traffic flow at its stores. It added that Parkson would also invest in store renovation every ten years.

On the other hand, the research firm also revealed that Parkson recently signed a contract in Cambodia, where it planned to open a new store in 2011. Following a briefing, the research firm stated that Parkson would acquire existing stores in Cambodia and expand there if good opportunities arose.

On the financial front, HwangDBS said that Parkson had a strong balance sheet of RM226 million net cash as at end of September 2009 and a healthy free cash flow of about RM370 million forecast for financial year 2011.

Apart from that, the research firm projected

that same-store-sales for October to December 2009 might continue to

register high single digit growth in China, while the retailer could report better than expected sales figures for the Malaysian and Vietnamese markets. HwangDBS believed that Parkson was on track to meet its earnings growth projections of 21 per cent for financial year

2010 and 33 per cent for financial year 2011 with 85 per cent of its total profit derived from China.

Therefore, the research firm was bullish on these developments and upgraded the recommendation for the shares price of Parkson with a 12-month target price of RM6.30 per share.