Saturday, July 20, 2013

Parkson Holdings - Muted outlook in the near term

Parkson Holdings -
Price Target:4.43
Last Price:3.78
Muted outlook in the near term

- We reaffirm our HOLD recommendation on Parkson Holdings (PHB), with an unchanged fair value of RM4.43/share, based on a sum-of-parts valuation.

- We met up with Parkson Retail Asia’s (PRA) management recently and continue to view muted near-term earnings, underpinned by cautious sentiment in Malaysia, post general election and weakness in Vietnam’s economy.

- The re-rating catalysts for PRA, we believe, are premised on:- (1) scaling up of expansion into Indonesia and a faster-thanexpected turnaround of new stores; and (2) recovery in the Vietnamese economy.

- We opine that Indonesia’s growth would remain buoyant, offering greater potential compared to Malaysia as the Parkson brand is already matured, having 39 stores and two new stores in FY14F.

- Indonesia would not only benefit from the growing middle class to support its expansion, but its dual branding strategy consisting of Centro and Parkson, would enable it to have an easier and greater penetration into other cities. Present focus is to expand out from Java Island. Parkson’s expansion would be concentrated on the first-tier cities. Five new stores are in the pipeline for FY14F.

- Despite an economy slowdown in Vietnam, the group had been proactively looking to secure good leases and locations, to capture and be ready for the upswing in Vietnam’s economy. Although having just eight stores, Parkson’s premium brand commands c.60% market share, given its first mover advantage as a modern mall concept.

- Leveraging on its experience in Vietnam, PRA’s penetration into Myanmar and Cambodia, is part of its long-term strategy. The Parkson brand is the first mover advantage into such underserved market. Parkson Myanmar had opened in May, while Cambodia is earmarked for 2QFY14.

- The VAT introduction at Odel Plc is expected to have a short impact for the group and would normalised thereafter. Margins are expected to be under pressure as the full impact could not be passed on to consumers.

- Given PHB’s earnings growth vulnerability to the adverse change from a macro perspective, particularly in China’s deceleration of SSSG, PHB FY13F earnings outlook is likely to come below FY12’s by 30%. We think China’s FY13F SSSG would remain at a negative territory of 2%, impacted by the competitive retail landscape and ageing store portfolio, coupled with challenges posed by online brands given its much lower price advantage.

- In light of the lacklustre earnings growth and uncertainty over any improved macroeconomic conditions, we maintain our HOLD call.

Source: AmeSecurities

Publish date: 19/07/13

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