Parkson Retail Asia's recurring profit crashed 47% to SGD3.4m

Consumer spending slowed during Malaysia's election.

According to OSK, Parkson Retail Asia (PRA)’s 4Q13 recurring profit of SGD3.4m (-47% y-o-y, -65% q-o-q) was below consensus’ SGD13m estimate.

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Revenue was relatively unchanged at SGD103m, mainly due to weak same-store-sales growth (SSSG) in Malaysia and its store closure at The Mall, Kuala Lumpur. 4Q13 SSSG was +0.6% for Malaysia, +1.1% for Vietnam and +8.5% for Indonesia.

The company attributed the slow momentum to soft consumer spending during the election quarter in Malaysia and economic slowdown in Vietnam. Meanwhile, Indonesia shines on improved traffic and selling prices.

Malaysia remained the largest revenue contributor, accounting for 79% of total revenue and almost all its 4Q13 profit. Excluding a SGD2.5m foreign exchange gain a year ago, recurring net margin fell 3.0ppts to 3.3% on intense price promotions in Malaysia to attract traffic, increased losses from new stores in Vietnam, and higher nonoperational costs such as e-commerce start-up and head office expenses.

Following the 4Q13 blip, we cut our FY14 profit estimates by 49% to SGD41m and project earnings to grow by 33% to SGD55m in FY15. The estimates are 33% and 26% below consensus forecasts respectively.

In addition, we expect earnings to contract by 27% y-o-y to SGD8.5m in 1Q14, before recovering by 12% to SGD15m in 2Q, its traditional peak period.

To better reflect PRA’s cash-generative characteristics and its SGD177m net cash position, we switch to a DCF valuation, deriving a lower TP of SGD1.28 (from SGD1.77).