3 reasons why Parkson Retail Asia's earnings are unlikely to excite

A depreciating rupiah is one.

According to CIMB, Parkson Retail Asia's near-term earnings are likely to be depressed by 1) a depreciating rupiah 2) a downturn in Vietnam 3) drop in consumer spending in Malaysia from the uncertainty caused by the election in 4Q.

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However, things appear to be picking up. Our strategists expect the rupiah to stabilise this year, and Vietnam SSSG is expected to be flat in FY13.

PRA’s expansion in Indonesia will ramp up with the launch of ‘Parkson’ branded department stores. The company has operated department stores under the acquired ‘Centro’ brand for the past two years.

The group’s retail space is expected to increase by 57% in FY14, which is the highest in all its key markets. Despite the presence of a powerful incumbent, MAPI, in the mid-to upper-middle class segment in which PRA will compete, we are positive on its execution capability.

We think that MAPI will probably become PRA’s concessionaire, which will benefit PRA as MAPI has the exclusive distribution rights for more than 100 international brands.

Profitability is also expected to rise, thanks to cost savings that will accruefrom a larger store network.