PARKSON RETAIL ASIA: After Plunge, To buy or not to buy?

This article was recently published on Silly Investor's blog and is republished with permission.

I HAVE ALWAYS wanted to buy a piece of retail business.

Parkson_stores4.15 Parkson Retail Asia is on its way to becoming a star candidate as its share price movement looks like a falling knife. Possible reasons for the fall:

1) Malaysia's retail sector is facing a lot of headwind. GST has just been implemented, the missing MH370 has no proper closure and is pissing off Chinese tourists.

2) Malaysia's economy is not actually roaring, the ringgit has been falling, and it's being affected by weak oil prices.

3) The retail sector itself is competitive. And while Parkson is a well established brand in Malaysia, its concepts are hardly different from other department stores. At least, I cannot really understand the difference: It is still cosmetics on the first floor, ladies accessories etc... How does it differentiate itself from Isetan? Although Parkson does not operate in Singapore, how would it match up with OG, Robinsons or even CK Tang?

4) Its horrendous handling of the closure of Keangnam Tower Parkson store at Hanoi. (See past post here) The amount of compensation is unknown, but estimated at 27 mio for a year's rent for the NLA at Keangnam Tower Parkson as compensation would have wiped the whole year's earnings off.

Parkson_chart4.15 Parkson Retail Asia's shares peaked at above S$1.60 in early 2013 and has sunk steadily to just 60 cents. Chart: Yahoo!

Reasons why I like it are here, which I would not elaborate.

So, I decided to think about the business deeper as I find Parkson still an interesting counter to continue researching.

First of all, I researched on 2 failed department stores - Oriental Emporium (英保良) and Japan Yaohan.

I stumbled upon a very wonderful blog which I will add to my blog roll, "Remember SIngapore". Readers might want to check out the blog and the blogger's write-up on Oriental Emporium. But to keep the story short, high debt levels, aggressive expansion and a turn of the economy led to once big retail players to go the way of the dodo. Is Parkson facing a similar fate (it does not need to fail, but just do badly enough to make investor cry.)

Parkson is expanding aggresively overseas in the Southeast Asia market, it wants to have a first mover advantage in relatively untapped markets like Myanmar, Vietnam etc. Alas, how quickly the Southeast Asian consumer story turns, and how Mr Market which used to view it as a growth stock not views it depressingly.

Why am I still harping on Parkson then? I am not vested, but I seriously will consider buying some shares if there is some light shed on the Vietnam compensation or if it really continues its freefall.

1) I believe MH370 effect is temporary and Chinese tourists will return. Not in the near term, but they have a short memory.

2) GST in Malaysia may create a knee-jerk reaction in the Q4 from 1 April, but GST is used to replace SST (read here), so the net effect on consumers should be muted after the confusion settles.

3) Parkson is in a net cash position. So the case of it going the way of the dodo is not high. Assume a rather high compensation of 3 years' rent for the Parkson store in Hanoi -- Parkson's 200 mio cash will be enough to pay for it.

4) Retail is a bad business to be in. Isetan closed its Wisma Atria store, John Little is closed in 2 locations.

Stock price (2 Apr 2015)	60 cents
52-week range	58.5 – 86.62 cents
PE (ttm)	14.6
Estimated P/E (04/2015)	14.6
Market cap	S$406 million
Price/book	1.7
Dividend yield	4.17%

So what is Parkson offering? Of all my concerns, I believe No. 4 is the biggest bugbear. Retail is facing competition both from conventional players and from e-commerce retailers.

Although I always believed both are not mutually exclusive, a check of Parkson Malaysia's website shows me it is under maintenance until August. It is really a long time if Parkson is serious about getting into the e-retail game.

Its Vietnam website shows a lot of advertising and information and products, and just when I wondered if I could buy something online, I was directed to a member login page. I thought this is highly unfriendly given the ease of use of credit cards to shop online.

When I went Johor Baru the other day, there was a Parkson warehouse clearance sale. The polo T-shirts and leather shoes were rather value for money after 50% and 70% discount, and also after converting the price into Singapore dollars. I seriously do not think I can get such good quality polo-t and leather shoes for S$15 and S$40. But if there is no discount, would I buy?....

It is a business worth more looking at and thinking about.

Previous stories by 'Silly Investor'"

INVESTOR: "My delusional financial journey so far"

Investor: "Bought MIT, ST Engg, SembCorp, Lee Metals, Lippo Malls REIT"

PARKSON RETAIL ASIA: After Plunge, To buy or not to buy?

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