This Share Is a Whisker from Its 52-Week Low: Will It Rebound Soon?

This is an interesting company. It has a well-known brand, a long operating history, and it is experiencing the tailwinds of strong economic growth in a number of fast-growing emerging markets like Malaysia, Vietnam, and Indonesia.

Yet, its share price has fallen close to 50% from its 52-week high of S$1.65 that it reached last July. What has gone wrong and is this a hidden opportunity?

“I do not know how to value this”

The company in question is Parkson Retail Asia (SGX O9E), an operator of departmental stores and supermarkets in Malaysia, Vietnam, Indonesia, Myanmar and Sri Lanka. It is part of the Lion Group of companies and is majority-owned by one of Malaysia’s richest men, Tan Sri William Cheng.

At its current price of S$0.88 per share, it has not only fallen by more than 50% from its 52-week high (as mentioned earlier), it is in fact just a whisker away from its 52-week low of S$0.85.

Interestingly, when Parkson Retail Asia was near its 52-week high, one investment professional actually told me: “I do not know how to value this company; it seems to be very expensive using every metric I know.”

Near its 52-week high of S$ 1.65 per share, it was trading at almost 30 times trailing earnings with a dividend yield of just 1.6%.

A stumbling block

In its financial year ended 30 June 2012 (FY2012), the company had managed to post some strong growth figures; revenue and profit were up 18% and 30% year-on-year respectively. However, the company’s growth path soon encountered a stumbling block when there was a slowdown in most of its markets in FY2013. The company ended up facing a decline in profit.

In fact, Parkson Retail Asia’s earnings have since dropped to S$36.5 million over the last 12 months, and is barely higher than the S$35 million it earned in FY2011. The company’s management is not expecting the company to rebound any time soon due to a slowdown in tourism in Malaysia and an oversupply of retail space in Vietnam.

Currently, even after a 50% drop in its share price, it is still trading at a forward P/E (price/earnings) ratio of 16 times its estimated earnings while carrying an estimated dividend yield of 3.0%

Foolish Summary

Retail has always been a tough and challenging business and somewhat unfortunately, that’s squarely in the camp of Parkson Retail Asia’s main business. In this line, management needs to be on their toes constantly and be prepared for ‘battle’ every single day. Now, with the company facing a slowdown in a number of its key markets and with its major shareholder – Tan Sri William Cheng – facing cash flow issues with his steel business in Malaysia, will Parkson Retail Asia be able to weather through its storm peacefully? As always, only time will tell.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.