Parkson Retail Asia
Target Price: SGD1.28
1Q14 Profit Beats Expectations
PRA’s 1Q14 recurring profit of SGD10.3m (-11% y-o-y, +203% q-o-q) was above our SGD8.5m estimate. Key positive was a better-than-expected margins recovery from 4Q13’s disappointing numbers, hinting a return to y-o-y growth momentum from 2Q14. Its share price has corrected 31% since our last update and we believe its risk-reward tradeoff has since improved. Upgrade to BUY, with an unchanged SGD1.28 TP.
• 1Q14 revenue dips 4% y-o-y. Parkson Retail Asia (PRA)’s 1Q14 revenue fell 4% y-o-y to SGD109m, mainly due to renovation works at three stores in Malaysia ahead of the year-end peak shopping season in 2Q14, and store closure at The Mall, Kuala Lumpur. 1Q14 same-store-sales growth was weak at -0.1% in Malaysia, -1.1% in Vietnam and +3.9% in Indonesia due to sluggish consumer sentiment. Nonetheless, management expects operating results to improve in the coming quarters, driven by the opening of three newly renovated stores in 2Q14. Malaysia remained the largest revenue contributor, accounting for 77% of total revenue and 90% of 1Q14 profit.
• Net margin contracts by a smaller 0.8ppt. Recurring margin contracted by 0.8ppt to 9.4% (our estimate: 7.0%), suggesting that the steep 3.0ppts contraction in 4Q13 was mainly due to a one-off effect arising from the country’s general election. Subsequently, 1Q14 profit came in at SGD10.3m, trumping our expected SGD8.5m.
• Quarterly growth momentum to resume. The group’s good results ease our lingering concern over its margin pressure in 4Q13. Hence, we lift our FY14F/15F profit estimates by 4%/5% respectively. Going forward, we expect recurring profit to grow by 11%, 14% and 93% in the coming three quarters respectively.
• Upgrade to BUY, with unchanged SGD1.28 TP. We raise our WACC assumption to 11.7% (from 11.3%) on higher interest rate expectations, which mitigate the positive impact from our earnings revision. Our DCF-derived TP is unchanged at SGD1.28, translating into a 32% upside. Given an improved risk-reward tradeoff, we upgrade PRA to BUY.
Valuation. Post-earnings revision, our DCF-derived TP remains unchanged at SGD1.28 TP on higher WACC assumptions of 11.7% (from 11.3%). We also assume an average growth rate of 7.3% for FY16-FY18, with a terminal growth rate of 3.6%.
Key risks. The downside risks to our BUY recommendation include intense competition and weak consumer sentiment.
Publish date: 15/11/13