Parkson Turns to Southeast Asia for Growth Outside of China

Parkson Retail Group Managing Director Alfred Cheng
Alfred Cheng, managing director of Parkson Retail Group Ltd. Photographer: Goh Seng Chong /Bloomberg

Parkson Holdings Bhd., a Kuala Lumpur-based department-store operator that makes most of its revenue in China, plans to enter new markets in Southeast Asia to tap the region’s growing affluence.

The retailer that has 102 outlets in China, Malaysia, Vietnam and Indonesia, sees Myanmar, Thailand and the Philippines as potential markets, said Alfred Cheng, managing director of the units listed in Hong Kong and Singapore. Parkson plans to open 24 more stores in Asia by the end of next year, followed by its first in Cambodia in the first half of 2013, Cheng said.

“I am always on the lookout,” he said in an interview in Kuala Lumpur yesterday. “The Indo-China region, as a whole, has about 160 million people. That’s where we want to be.”

Malaysia, Indonesia and Vietnam collectively contributed 30 percent to Parkson’s group revenue for the financial year ended June, with the rest coming from China, according to data compiled by Bloomberg. Non-China revenue may grow to mirror that generated in China in the future as the group expands, Cheng said, without specifying a time frame.

It currently operates 49 outlets in China, 37 in Malaysia, eight each in Vietnam and Indonesia.

Parkson’s China outlets will probably sustain same-store sales growth of as much as 13 percent next year, according to Cheng. Revenue from stores open more than a year in Vietnam will grow about 15 percent to 20 percent next year, and 8 percent to 10 percent in both Malaysia and Indonesia, he said.

New Locations

“They had been quite slow in expanding in the last two to three years,” Eing Kar Mei, an analyst at OSK Holdings Bhd., said in a telephone interview in Kuala Lumpur today. “Now, they’re ramping up” to enter new locations before its rivals, said Eing, who has a “buy” rating for the stock and fair value of 6.42 ringgit.

Parkson was set up in Malaysia in 1987 as the retailing arm of the Lion Group, controlled by Cheng Heng Jem, better known as William Cheng. The holding company owns 51.5 percent of Hong Kong-listed Parkson Retail Group Ltd., which is based in Beijing, and 67.6 percent of Singapore-listed Parkson Retail Asia Ltd., which runs all stores outside China, according to stock exchange filings. Alfred Cheng is managing director of both.

Parkson Retail Asia debuted on the Singapore stock exchange on Nov. 3 after raising S$138.2 million ($108 million) in an initial share sale. In June, the group ventured into the Indonesian market after acquiring PT Tozy Sentosa, which owns the country’s Centro department stores, for $12.8 million.

Shares Rise

“The idea of Parkson Retail Asia listing in Singapore is for it to have an independent profile so that it can undertake expansion within the countries we operate in, as well as to take on new countries when opportunity arises,” Cheng said. “Fifteen years or 20 years down the road, the rest of Asia could be equal size” to Parkson’s China business.

Parkson Holdings rose 0.4 percent to close at 5.70 ringgit in Kuala Lumpur today, while Parkson Retail Asia 1.3 percent to S$1.19 in Singapore. Parkson Retail Group was unchanged at HK$9.60.

Parkson Holdings rose 0.4 percent to close at 5.70 ringgit in Kuala Lumpur trading today, while Parkson Retail Asia gained 1.3 percent to S$1.19 in Singapore. Parkson Retail Group was unchanged at HK$9.60 in Hong Kong.

The Malaysian parent had 3.2 billion ringgit ($1 billion) in cash in September, according to data compiled by Bloomberg. Its position is “strong enough” for acquisitions and opening stores in new markets as opportunities arise, Cheng said. Parkson Retail Group signed an agreement last month to expand a loan, completed last year, by 60 percent to $400 million, giving it additional working capital to expand in China.

The group plans to open four new stores in China this month, said Cheng. The retailer opened its first store in Beijing in 1994 and now derives 70 percent of sales from the world’s most populous nation for the financial year ended June, according to data compiled by Bloomberg.

Dividend Policy

“We are cautiously aggressive with our plans,” he said. “We are operating in countries where the underlying domestic consumption is still growing very quickly.”

Parkson posted a 19 percent increase in net income to 90.3 million ringgit for the three months through Sept. 30, driven by higher sales and improved operating efficiency. Revenue grew 21 percent to 792 million ringgit.

“Our same-store sales growth is still growing at a very strong double-digit rate, so with that improvement, our bottom line continues to expand in double digits,” he said. “Despite the global uncertainty in the economic environment, the countries we are operating in are still in developing mode.”

Both Parkson Retail Group and Parkson Retail Asia have a policy of paying as much as 50 percent of net income as dividends to shareholders, Cheng added.

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