Parkson Retail Asia Limited ("PRA" or "the Company") is offering 147m shares at S$0.94 subject to further over-allotment option. Parkson was established in 1987 and today, operates about 50 stores across cities in Malaysia, Vietnam and Indonesia. The Company is scheduled to open 3 malls in FY2012 with one store each in Malaysia, Vietnam and Indonesia. The first "foreign" department store in Cambodia is expected to open in FY2013. The Company operates under the name Parkson in Malaysia and Vietnam and under the name "Centro" in Indonesia. The Indonesia malls were newly acquired in June 2011. In a nutshell, the Company operates departmental stores in South East Asia and is similar to companies such as Metro, Tangs, Isetan, Takashimaya etc.
Proforma sales has been growing steadily from S$301m from 30 Jun 2009 to S$408m in 30 Jun 2011 and net profit has also grown from S$11m in FY2009 to $35m in FY2011. PRA is offering 136.15m shares via placement and the remaining of 10.85m shares via public offering. The offer will end on 1 Nov 2011 at 12pm. The Company intends to use the majority of the proceeds raised for stores opening. The Company intends to distribute dividends between 40% to 50% of its distributable profits from next FY onwards.
According to the Prospectus, the proforma EPS for the year ending 30 June 2011 adjusted for the IPO shares will be 5.17 Singapore cents. At the IPO price of $0.94, it translates into a listing PER of 18.18x. The NAV post IPO will be $0.29 (versus the $0.94 subscription price). Based on a DBS research report dated 28 Oct on Parkson Holdings Berhad ("PHB"), the IPO price Parkson Retail Asia at 13x of forecasted earnings of FY12PE of S$48m. The market cap at IPO price is $699.64m.
Basically this is a retail sector play in the South East Asia (ex Singapore). It is good that SGX can attract a Malaysian home brand to list in Singapore. What would be some of the risks investors should be aware of?
1. Foreign Currencies risk. Basically the underlying assets are in Malaysia, Indonesia and Vietnam. The "sales and profits" will be made in those underlying currencies and then translated to Singapore dollars for reporting purposes. If SGD strengthens against currencies in those countries, then it will have an adverse impact on the profitability. From the cash flow statement, the forex impact on cash was a whopping negative $10.13m
2. Exchange Control. In addition to forex risks mentioned above, the repatriation of profits may be subjected to exchange controls in Malaysia and Vietnam. However, this may not be a significant risk factor as PRA will want to dividend out its earnings to its parent PHB.
It is interesting to note that while sales has been increasing over the last 3 years, the net cash generated from operating activities has actually been declining from $83m to $55m. The net cash used in Financing activities has also surged to $70m in FY2011 (mainly due to dividends of $56.3m back to its parent company..)
This deal somewhat reminds it of Capitaland spinning out Capitamall Asia. Parkson Holdings Berhad is already listed in Malaysia. It then restructure itself and groups all the SEA department stores under a new Singapore holding company, including the recently acquired Centro stores in Indonesia. It then list the new Singapore holding company called Parkson Retail Asia Limited. (For your info, the parent company of Parkson Holdings Berhad is Lion Diversified Holdings Berhad). After the IPO, Parkson Holdings Berhad will still own about 67.6% of the Company. PHB also holds about 51.5% of Parkson Retail Group listed on HKSE.
In terms of Valuation, the IPO is fairly priced for historical and somewhat more attractively priced for FY2012. As of 1 Nov, Parkson Holdings Berhad is trading at 17.7x historical and 14.4x forward while Parkson Retail Group is trading at 19.8x historical and 16.4x forward. If the IPO rise to 15x forward, it will imply a price of $1.08 (15% upside from IPO price). Post IPO, there will be 744.3m shares. Assuming DBS's $48m earnings forecast is accurate and they pay out 40-50%, that will mean $19.2-24m of dividends or around 2.58-3.22 Singapore cents per share. The implied yield will be 2.74-3.42%. While there are no 'similar peers' listed here, OSIM is currently trading at 11.1x forward and Metro Holdings at single digit PE. I guess it can 'command' a premium due to its strong parentage and underwriters willing to price the IPO at a premium despite current market sentiments.
Conclusion: This investment provides a good exposure to investors who are keen on the SEA department stores. I do like the outlook, proven track record and rising consumer income in Vietnam, Indonesia, Malaysia and possibly Cambodia going forward. While the pricing may not be cheap, it is priced close to its parent company and cheaper than its HK listed related company (reasonably so). The promised yield will provide some downside support while keeping enough cash for its future expansion.