Parkson
Its Prospects … dated Oct 2009
In Oct 2009, HK listed China based New World Department Store China Ltd said it would accelerate expansion in the mainland by adding five new department stores by FY2011 ending June 30 from 33 stores now (Oct 2009). The expansion will increase its retail gross floor area.
This may interests investors as NWDS starts getting more aggressive to catch up with its bigger rivals Parkson Retail Group Ltd which churns out 80% more in terms of revenue and 54% more in terms of earnings. PRG aims to grow its retail GFA by 15% per year.
NWDS is 72.3% owned by HK property giant New World Development Co. As NWDS expands, investors could see a narrowing of the stock’s current discount, in terms of multiple, to PRG, which is seen as more aggressive. In other words, the valuation of NWDS may improve as the company delivers faster earnings growth in the next few years (2010 & Beyond).
The valuation gap between NWDS and PRG is obvious at present (Oct 2009). NWDS was trading at 19 times forward projected earnings while PRG is much more expensive at 32times. That’s a wide gap although both operate in the same segment of the retail sector in China . That PRG, is trading at a premium to NWDS is probably due to the high growth projected for the company over the next few years (2010 & Beyond).
Looking back, both PRG and NWDS have performed at the same pave over the last three years (2006-2008). But somewhere the current (Oct 2009) projections for the companies’ future growth rates differ.
The way both companies manage their balance sheets shows that PRG has been more aggressive.
PRG, controlled by Tan Sri William and the Lion group, has its growth funded in part by gearing apart from cash flow. The company had net borrowings of HK$601 million as of June 30, 2009, which is 15% of its total equity of HK$4.15 billion. It is believed that the group may prepare to gear up further to fund expansion, should the need arise.
In comparison, NWDS has zero borrowings and held HK$2.92 billion cash as at June 30, 2009, which accounted for more than 65% of its HK4.32 billion equity. It would appear that the company has yet to touch the HK$2.56 billion cash it raised from an IPO exercise in July 2007. NWDS has been debt free since it was set up in 2004.
Theoretically, investors have only valued NWDS’ department store business at HK$8.06 billion, after deducting the HK$2.92 billion cash in the company (net current assets of HK$2.08 billion) from its market value of HK$10.98 billion. Stripping out the cash, NWDS is actually trading at 13.8 times FY2009 projected earnings of HK$582 million, which has widened its discount to PRG.
The company was being prudent by holding back expansion plan in 2008 as the global economy went into a tailspin. But now (Oct 2009), the timing seems right to put the cash to work in China , where growth is still resilient, as the global economy gradually recovers.
For companies, operating in China , preserving cash while pursuing a prudent growth strategy is hardly a practice that pleases investors. This is probably reflected in NWDS’ share price. In the retail sector of the mainland, where first mover advantage is critical, competition can only get more intense with newer outlets mushrooming in major cities while the market becomes gradually saturated. It is crucial that players speed up their expansion to gain a foothold in the market.
That being the case, NWDS’ strength is its strong balance sheet to speed up its expansion in China . The company also has an added advantage in being a unit of New World Development. The latter has a slew of residential and commercial development projects in china that it could integrate with NWDS’ department store operations.
****************************
Its Prospects … dated April 2009
Parkson Retail group Ltd (PrG), the largest department store in China listed in HKSE, is expected to be beneficiary of the considerably strong consumer spending.
PRG, a member of the Lion Group, posted a net profit of RMB841 million in FY2008.
Parent company, Parkson Holdings Bhd, which is listed on Bursa , is probably a good proxy. Parkson Holdings owns 53.4% of PRG.
Investors who put their money in PRG will offer them direct exposure to China ’s growth story. Furthermore, the HK listed entity is more liquid, though the valuation is more expensive.
PRG is the main contributor to Parkson Holdings. For the nine months ended March 31, 2009, the china operation generated about 85% of the group’s earnings.
For investors who invest in Parkson Holdings, it owns a retail business in Vietnam also, which is another emerging economy that has substantial growth potential.
Financial Results …
For 2QFY2009 ended Dec 31, 2008, Parkson Holdings Bhd saw its net profit grow 72.3% to Rm104 million. Meanwhile revenue jump to RM684 million.
It saw a 74% plunge in its net profit to RM75.94 million in its third quarter ended March 31, 2009 (3QFY09) from RM295.11 million a year earlier, as the previous corresponding period’s earnings had incorporated an exceptional gain from shares disposal.
Its revenue rose 10.8% to RM703.18 million from RM634.53 million. Earnings per share was 7.48 sen versus 30.4 sen previously. No dividend was declared.
At pre-tax level, the profit of RM188.78 million would have represented a 21% growth over RM156.31 million, excluding the exceptional gain, a year earlier.
For the nine months up to March 31, Parkson’s net profit stood at RM240.28 million, compared with RM395.26 million a year earlier, while revenue rose 16% to RM2 billion from RM1.73 billion previously.
The commendable results were achieved through same-store sales growth, the inclusion of the results of new stores opened and improved productivity from the more efficient use of available floor space.
However, its retail operations were expected to record lower performance in the current quarter, in view of the absence of major festivities and the slowdown in regional retail growth.
XXXXXXXXXXXXXXX
Astro
What’s Up? … dated Oct 2009
Dominant pay-TV provider AStro, in partnership with ESPN Star Sports (ESS) has won the exclusive broadcasting rights for the upcoming 2010/2013 English Premier League (EPL) for Malaysia from the FA Premier League.
In a joint-statement this morning, the companies said that as part of the arrangement, "for the first time, all 380 matches of EPL will be available to be shown live on ESPN, STAR Sports and Astro channels".
However, Astro had to pay "a higher price than anticipated" for the rights to the EPL, officially known as the Barclays Premier League (BPL), due to "the competitive environment".
Will Astro able to recoup its cost incurred – said to be US$250 million (RM855 million) – to keep its exclusive rights to broadcast the EPL for another three seasons through 2013?
Will the EM12 increase in the monthly subscription price of Astro’s sports package from Aug 1 2009 be enough to cover the cost increase, given that the company ended up paying more than it had anticipated for the EPL Rights?
Some say the recent price hike was actually a pre-emptive move ahead of the EPL rights bid and expects the cost increase to be passed on to customers via rates hikes.
But critics said that concern are that Astro’s margins could face undue pressure as the latter would not be able to fully pass on the cost increase so soon after a price hike only three months ago (Aug 2009). Expecting Astro to repackage its sports content as well as other package mixes with a subscription price hike in the medium term.
Without price hike, the RM285 million increase in content cost per year could potentially clip 8% off Asto ‘s FY2010/FY2013 bottom line.
By calculations show that the increase in Astro’s EPL cost per subscriber from the 2006/2009 to the 2010/2013 season is about half the 114% jump in the absolute amount paid for the rights, if few or none of its subscribers choose to drop the sports package.
Astro’s US$300 million EPL cost for the 2010/2013 season works out to about RM14 per subscriber per month, if one were to assume that 2.1 million subscribers continue to take up its sports package through 2013. This is about 55% more than the estimated cost of RM9 per subscriber per month on average for the 2006/2009 season.
Astro’s EPL cost for the 2010/2013 season would rise to some Rm19 per subscriber per month (from RM9) if only 50% of an estimated three million subscribers continue to take up the sports package following a price hike. In other words, Astro should be able to recoup most of its EPL cost increase by raising the subscription price of its sports package by another RM10 per month.
It may be worth nothing that while Astro’s content cost had seen on average a 19% increase over the past five years (2004-2008) to RM1 billion in FY2009, the company had hitherto managed to keep the average revenue per user from its subscribers relatively steady at RM79.00 for 1HFY1/2010 (with 2.78 million subscribers).
Going forward, Astro will have to contend with challenges in the wake of rapid technological advances that have created alternative services. In Sept 2009, Astro had warned that margins for the rest of FY2010 ending Jan 31 would be affected as it had brought forward an additional RM200 million investment to ready its network for high definition television (HD).
The benefits will only realise later years as it may generate no significant revenue during the early phase of the launch of this service.
Besides increasing prices via the repackaging of its channel offerings, there are also opportunities for Astro to replace its services when introducing HDTV by early 2010.
It is understood that HDTV will be introduce in 2010 EPL season in the middle of 2010. There is also an opportunity for Astro to push its HDTV service to footie fans.
Based on the experience abroad, there is the danger of a near term threat to margins due to the mismatch between expensed cost and the trickling in of revenue and profits in the initial stages.
It is likely that Astro will have to subsidise the HDTC set up boxes to encourage takeup, but the chances are that in return for the subsidy, customers will have to sign longer contract.
*********************************
Sources say TM has hired a third party sports marketing consultant to bid against incumbent Astro for the exclusive broadcast rights to the EPL 2010/2013 season.
This could set the stage for a bidding war that could see costs for the winner double to a shopping rm800 million.
Total Sports Asia Sdn Bhd will be bidding on TM’s behalf against Astro in a couple of weeks for the rights.
If Singapore ’s experience is any indication, the bidding war for rights to the mega sporting league in Malaysia is expected to push the bids to well above RM500 million.
It is understood that Astro forked out some rm400 million for the exclusive rights to broadcast the current 2006/2009 EPL season, which was more than what it paid for in the previous season. It was then that Astro, for the first time, faced competition for the rights via a joint bid by TM and Media Prima Bhd.
According to unconfirmed reports, SingTel’s winning bid was to the tune of S$400 million. Its win was a blow to Singapore ’s incumbent integrated pay-TV provider, Sarhub.
Both TM and Media Prima have so far not ruled out completely the possibility of entering a bid for the EPL rights.
TM’s rollout of its high speed broadband (HSBB) network is still at a nascent stage. It plans to cover 1.3 million households in the first three years of the rollout of its HSBB network. It is uncertain how much rollout TM can achieve by May 2010. Conversely Astro’s pay TV subscriber base was 2.78 million of Malaysian households as at end July 2009.
It is believed that Media Prima will be brought in because TM’s limited subscriber reach. Another industry source speculates that TM is likely to sell the EPL content back to Astro, should it clinch the rights, to boost returns on the huge upfront investment for the rights.
TM has the lion’s share of Malaysia ’s fixed line network, but most broadband ready lines in Malaysia can only deliver low definition pictures.
Moreover, the needs for TM to make sure it recoups its investment, should it clinch the EPL rights, given that it needs to generate enough cash flow to pay for the rollout of its HSBB network as well as honour its dividend commitment of at least RM700 million a year to shareholders. Without this dividend promise, there would be little reason to support TM’s current price given the competition it is facing in its traditional market and the uncertainty surrounding the pay back period from its huge upfront investment in HSBB.
And content is an expensive business to be in. Astro’s content cost was Rm1 billion for 2009 ended Jan 31.
Come 2010, it will be another expensive year, content wise, for Astro which is spending some Rm200 million on upgrades to offer high definition TV. Besides the EPL rights, 2010 will see the start of the FIFA World Cup.
Considering the circumstances, the winner of Malaysia ’s EPL broadcast rights may not have much to celebrate should a bidding war break out, especially when politics makes it hard to pass on all the cost increase to consumers.
****************************
What’s Up? … dated Oct 2009
TM and Astro All Asia Networks plc may be getting into a bidding war to secure the rights for broadcasting the English Premier League (EPL) for the next three seasons, with the price likely to be more than RM500mil.
TM has denied putting in a bid “at this moment” for the EPL rights but it declined to say if it plans to do so or is using an intermediary to bid for the highly sought-after English football rights.
Astro declined to comment.
Industry sources said the bidding was entering a second round and might include other contenders such as ESPN STAR Sports. ESPN currently holds EPL broadcast rights for the Southeast Asian region and sells it exclusively to Astro in the Malaysian market.
TM is believed to be keen on having the EPL broadcast rights for its planned broadband TV or IPTV (Internet protocol television) launch, following Singapore Telecommunications’ (SingTel) moves. SingTel recently secured EPL rights for three years beginning 2010, outbidding rival incumbent cable television provider Starhub Ltd.
SingTel paid around S$400mil for the EPL rights, according to unconfirmed sources. SingTel plans to broadcast EPL games on its IPTV service called mio TV.
Having attractive content will be a key factor in the success of any new TV offering.
One of the main reasons why pay-TV service, MiTV, launched in 2005, had failed to attract large subscriber numbers was due to not having sufficiently attractive content.
But while the exclusive EPL content strengthened SingTel’s IPTV proposition, it was hard to make the same argument for TM.
SingTel’s IPTV is already up and running on a high-speed broadband network with about 100,000 subscribers while TM is only now piloting its high-speed broadband network. What is it going to do with all that expensive content without a significant subscriber base?
One possibility is to “re-sell” the EPL content before its IPTV network is up. It has been reported earlier that TM may tie up with Media Prima to bid for the EPL rights. Media Prima owns all the non-government free-to-air TV stations in Malaysia .
It is understood that the cost of EPL content makes up about a third of Astro’s total content cost and is not profit generating in itself. But EPL content is still a major pull factor for Astro’s Malaysian subscribers, many of whom are ardent football fans. Hence, it is not suprising that Astro is also seeking to bid for the EPL content directly from the Premier League, rather than buy the content from a third party like ESPN.
TM has been quiet about its IPTV plans but last year it had hired Jeremy Kung, a former Star-TV and PCCW (HK) executive, to help with the rollout. TM also has plans to bundle its voice, broadband and IPTV services into an attractive package to woo customers.
XXXXXXXXXXX
Proton
What’s Up? …. Oct 2009
Any partnership must be based on the company’s strengths from which it could secure the best possible deal. He dismissed impressions of the press, third parties and the public that Proton was “so weak and dying” that it could not stand on its feet.
According to reports, the national carmaker hopes to strike a deal with a foreign car company by the year-end but it did not disclose the party’s identity.
Nadzmi said Proton was determined to change its financial performance with the right products and increasing market share.
******************************
What’s Up? … dated Sept 2009
It confirmed that it was in discussion on forming a strategic partnership, but refused to name the other party. The discussion is ongoing; I don't want to comment with which party," managing director Datuk Syed Zainal Abidin Syed Mohamed Tahir said after breaking fast with journalists.
According to a news report, Proton was in discussion with Volkswagen AG, Europe 's largest carmaker.
Volkswagen group was also reported planning to make Malaysia as its sourcing hub for auto parts and CKD (completely-knocked down) assembly with a local automaker.
Proton advisor Tun Dr Mahathir said Proton needed a strategic partnership with an international automotive company to upgrade the standard of national car.
******************************
What’s Up? … dated Sept 2009
Proton Holdings Bhd is in talks with Volkswagen (VW) that could lead to a strategic partnership and the assembly of vehicles at the national carmaker’s plant in Tanjung Malim.
The partnership was not expected to see the German auto giant taking an equity stake in Proton but a collaboration in platforms and engines was likely being negotiated, said market sources.
The talks between Proton and VW come at a time when DRB-HICOM Bhd is also engaged in discussions with the German company to assemble cars in Pekan.
For the long term of the company, Proton needs a partner because the size of Malaysia ’s market might not be enough to sustain an independent producer. News that Proton is again in talks with VW is somewhat surprising as both parties have come to, and walked away, from the negotiating table numerous times. A couple of years ago, Proton came close to inking a deal with VW which would have seen the German company taking a stake in the national carmaker. A last-minute pitch by the Proton management to build on the company’s own “green shoots” then persuaded the Government from sealing an agreement with VW.
Proton has maintained it needs a strategic partner but would agree to one on its own terms. It is also understood that the Government would like Proton to have a strategic partner before the review of the National Automotive Policy is completed.
VW’s interest in Malaysia , too, has grown over the past couple of years after equity stake talks with Proton ended. It has established its own sales and service business in Malaysia , and as of Sept 7 2009, has seen the number of cars sold reach a total of 2,261 units after 2½ years of operations.
VW is reported to be looking at Malaysia as its sourcing hub for auto components in the region to fulfil its worldwide production and has intimated plans to expand its presence in the country through the local assembly of some of its cars.
Volkswagen Group Malaysia Sdn Bhd managing director was quoted as saying the group was also thinking of making Malaysia its hub for parts distribution in South-East Asia . They will not be looking only at Malaysia ’s market but use Malaysia as a sourcing hub for worldwide production. VW is also interested in assembling cars in Malaysia and Prinz the company was in discussion with a number of parties.
Malaysia remains an important market in the region as it is the largest passenger car market in South-East Asia , which is said to be an attractive element for VW.
XXXXXXXXXXXXXXX
DRB Hicom
What’s Up? … dated Oct 2009
It has put in a bid to buy 32% of Proton Holdings Bhd in hopes that ownership of the national carmaker in the hands of the private sector would help improve the entire industry.
Arguments put forward by sources close to the company are that vendors would gain from a more private sector-driven approach and that a potential tie-up between Volkswagen and Proton would also fit DRB-HICOM’s multi-partner business model. If the Government holds control of Proton, it may lose out on the big picture.
Proton is now engaged in talks with VW on a strategic partnership as DRB-HICOM and privately held Yasmin Holdings, together with the help of the Naza group and two former top executives of Proton, zero in on a controlling stake in Proton. The executives are Datuk Kisai Rahmat and Datuk Kamarulzaman Darus.
The fight for control of Proton could see the entrance of a third party – the company’s management – after Proton chairman Datuk Mohd Nadzmi Mohd Salleh gave his backing to any potential management buyout (MBO) of the national carmaker.
DRB-HICOM’s interest in Proton was sparked after the latter began talks with VW.
To do so, it had requested DRB-HICOM to back away from its own ongoing discussions of a business tie-up with VW which started after Proton called off strategic partnership talks a few years ago.
The purpose of the talks between DRB-HICOM and VW was not only to help the German maker fill a gap in its market reach, as South-East Asia was a weak spot for VW, but also to utilise the excess capacity at DRB-HICOM’s plants in Pekan by assembling a number of models.
It appears that VW was sold on DRB-HICOM’s ability to assemble cars in Pekan after seeing Mercedes-Benz S-class limousines being assembled at the plant.
Negotiations took some time but it is learnt that both parties were just a hair’s breadth away from coming to an agreement before Proton intervened to recommence strategic partnership talks some months ago.
Sources say DRB-HICOM intends to make Proton more competitive than it is currently operating at, given the vast synergies between the two companies. DRB-HICOM is a huge component supplier to Proton and a huge chunk of DRB-HICOM’s revenue is derived from Proton.
Furthermore, ownership of Proton and possibly fewer market restrictions would lead to more investments from other motor players in the country. DRB-HICOM has partnerships with a number of other vehicle makers such as Suzuki, Isuzu, Audi, Honda and Mercedes-Benz.
It is also learnt that its decision to buy a controlling stake in Proton is also not contingent upon Proton and VW sealing a deal. It will still go ahead with the acquisition.
Sources said DRB-HICOM still intended to pursue market opening avenues if it managed to snare control of Proton. The general consensus is that Proton would be forced to become more globally competitive once its ownership was out of the Government’s hands.
But Proton also needs a lot of subsidies to survive. If the Government were to parcel out ownership of Proton to private hands and continue to dish out protective incentives, others may then complain.
DRB-HICOM, under the stewardship of Tan Sri Mohd Saleh Sulong, was once the owner of Proton but sold a 26% controlling stake in the carmaker to Petronas for RM981mil in December 2000 as part of a restructuring process.
However, DRB-HICOM, under the control of Tan Sri Syed Mokhtar Al-Bukhary, had in 2006 disclosed its intent to buy a controlling stake in Proton.
Meanwhile, Proton group managing director Datuk Syed Zainal Abidin Syed Mohamed Tahir as saying that Proton expected to conclude talks with Indian carmakers on the collaboration of products and market by next year (2010).
****************************
What’s Up? … dated Sept 2009
DRB-HICOM Bhd has made a pitch to GM about jointly conducting completely-knocked-down (CKD) operations in the country.
Market sources said the prospects of doing local assembly for GM would be beneficial to future sales as locally assembled cars would be cheaper.
GM is conducting a review of its operations and business in Malaysia and in the centre of talks is the business relationship with DRB-HICOM via HICOM-Chevrolet Sdn Bhd.
One report indicated a decision might have been made with current Chevy 3S dealer Cergazam Sdn Bhd, a company owned by timber company Permaju Industries Bhd, with Cergazam taking over distribution operations until a full-time partner could be found.
The seeming breakdown in the relationship between GM and DRB-HICOM is somewhat puzzling as the latter has had a long and fruitful relationship with other vehicle manufacturers in the country.
From having total control, DRB-HICOM now has a minority stake in the Suzuki business in the country and business is said to be good.
In Mitsubishi, the company has a 48% stake and is looking hard at doing some CKD operations here.
The Isuzu operations too have seen DRB-HICOM taking a minority stake after running the show in the past. After restructuring operations in Pekan, the joint-venture company with Isuzu is said to be flourishing and profitable.
DRB-HICOM is also assembling Mercedes-Benz cars at its plant in Pekan, which the company sees as an endorsement of its capabilities.
There are many others who are knocking on DRB-HICOM’s doors wanting to explore the possibility of doing assembly in Pekan.
Its most successful joint venture is with Honda, where DRB-HICOM has a 34% stake.
With the Chevy business in Malaysia , DRB-HICOM started distributing and selling GM cars in 2003 and was selling about 6,000 cars a year with more than 30 dealers under its wing. The number of dealers shrank over time given GM’s preference for its dealers to have 3S (sales, service and spares) capability. There are now about eight dealers in the country, the largest of which is Cergazam.
Apart from being impacted by the national automotive policy (NAP), sales have also not been helped by a sparse lineup of new models. GM has sold just under 1,000 cars since taking over management control of HICOM-Chevrolet in 2007 and market observers said the Chevy Cruze would be the only big name new car slotted for sale next year.
