Parkson Retail Asia is pushing ahead with its initial public offering in Singapore after securing a handful of anchor orders and what sources described as a “reasonable shadow book”. However, the size of the offering has been reduced compared to earlier indications and the company is now looking to raise between S$137 million and S$157 million ($108 million to $124 million).
During the investor education stage bankers talked about a deal size of about $200 million, but feedback from investors has prompted the issuer to lower its valuation targets. It has also decided to issue slightly fewer new shares.
The company, which operates department stores in Southeast Asia, kicked off the international bookbuilding with one-on-one meetings in Hong Kong yesterday and is aiming to list in Singapore on November 3.
A spin-off from Kuala Lumpur-listed Parkson Holdings, Parkson Asia is seeking to take advantage of the investor support for consumer retail stocks to raise money for future expansion. The strategy is to expand its existing store network in Malaysia, Vietnam and Indonesia, as well as to enter other countries with strong growth potential, either by acquiring existing businesses or by building its own operations. Its first department store in Cambodia is currently under development and is expected to open in 2013, which could make Parkson Asia the first foreign department store operator in that country.
The IPO comprises 147 million shares, of which 54.4% are new. The remainder are secondary shares sold by Parkson Holdings and Mitra Samaya, a private investor that currently owns 9.9% of the company. The offering accounts for 21.7% of the enlarged share capital, compared to earlier plans to offer 25%. However, there is also a 15% greenshoe made up of secondary shares that could increase the total deal size to as much as $143 million.
Seven percent of the deal will be earmarked for Singapore retail investors, while the rest will be sold to institutional investors.
The shares are offered in a range between S$0.935 and S$1.07, which translates into 13.6 to 15.6 times the projected earnings for the fiscal year to June 2012. This is well below the fair value estimates of 18 to 22 times used by syndicate analysts. However, with stock markets remaining highly volatile it is no surprise that investors are asking for a big discount to compensate for the price risk.
The price range does give the option of pricing Parkson Asia at a higher valuation than Parkson Holdings, which is currently trading at a price-to-earnings ratio of 14.2 times for the same fiscal year.
Following the IPO of Parkson Asia, Parkson Holdings will become primarily a holding company with significant interests in its two listed subsidiaries, although it does also have a retail property investment and development business. It owns 51.5% of Hong Kong-listed Parkson Retail Group, which operates 46 department stores in China. It hasn’t been disclosed how many secondary shares Parkson Holdings intends to sell in Parkson Asia’s IPO, but the parent has earlier said that it will hold at least 64% of the company. Given that the deal size has been reduced, its stake can now be expected to be slightly higher than that.
The close connection between the three companies is underlined by the fact that they all have the same chairman, William Cheng. Parkson Holdings is part of Cheng’s Lion Group, which aside from the retail business is also involved in steel, property development, tyres, computers, motorcycles and plantations.
Viewed on a calendar-year basis (to make Parkson Asia more comparable to its sector peers), the IPO price range translates into a 2012 P/E multiple of 12.3 to 14.1. By comparison, Parkson Retail Group closed yesterday at a 2012 P/E multiple of 15.9 times.
Other comps, like pan-Asia retailer Dairy Farm, Thailand-based department store operator Robinson and Indonesian retailer Mitra Adiperkasa finished yesterday at 2012 P/E ratios between 19 and 21 times.
While stock markets have been volatile, many stocks hit a 2011 low on October 4 and the general trend during most of Parkson Asia’s investor education period, which started on October 3, has been a rebound in share prices. Parkson Holdings has added 7.4% since then and, in Hong Kong, Parkson Retail Group has gained 13.6%.
However, that hasn’t necessarily translated into demand in the primary equity market. SMC Global Power Holdings Corp, a spin-off from Philippine conglomerate San Miguel Corp, which started investor education at the same time as Parkson Asia, decided after just six days of analyst meetings with investors to postpone the IPO for now. The independent power producer was seeking to raise up to $620 million based on an indicated price range in the listing application.
Parkson Asia currently operates 49 department stores and one supermarket, including 36 stores in Malaysia. At the end of last year it was the second largest department store operator in its home country, according to Euromonitor. It also has seven stores in Vietnam and earlier this year it acquired Centro Retail in Indonesia, which added six Centro-branded department stores and one supermarket to its portfolio.
According to a draft prospectus, the company believes that the well-known Parkson brand is one of its key competitive strengths in Malaysia and Vietnam, while the Centro brand has a well-defined identity in Indonesia. Other strengths include its extensive network of stores in prime and strategic areas, a stable relationship with concessionaires and suppliers, and its loyalty programmes. It also has an asset-light business strategy with most of its sales generated by its concessionaires and most of its stores being leased on a long-term basis.
The company added that it “operates in high growth economies where rising per capita income, increasing rates of urbanisation and younger population bases are expected to drive future growth of the department store sector”.
“In general, as incomes rise, consumer spending on discretionary items as a proportion of total household budgets increases, which we believe will benefit our business,” it said.
Euromonitor projects that between 2011 and 2015 retail sales by value in the department store sector will grow at a compound annual growth rate of 4.5% in Malaysia, 9.1% in Vietnam and 10.7% in Indonesia.
Parkson Asia’s revenues have been increasing gradually in the past three years and in the fiscal year to June 2011 reached S$367.3 million. Net profits have more than tripled in the same period from S$11.4 million in fiscal 2009 to S$35 million.
The bookbuilding will continue until October 26 and the IPO price will be fixed the following day. The trading debut is scheduled for November 3.
HSBC is global coordinator for the offering and a joint bookrunner together with CIMB. CLSA is a co-lead.
