Parkson Holdings Bhd
FULLY VALUED RM3.69
(Downgrade from Hold)
Price Target : 12-Month RM 3.00 (Prev RM 3.30)
Another disappointing quarter
1Q14 net profit below expectations
China contributions slumped while Malaysian market remains weak
Slash FY14-15 EPS by 22-27%
Downgrade to FULLY VALUED with lower TP of RM3.00
Below expectations. Parkson reported 1QFY14 net profit of RM30.7m (-48% y-o-y, +2% q-o-q), which was way below our expectations as 1QFY14 net profit is only 13% of our initial full-year estimate.
Earnings were mainly dragged by its China operations (under PRG), which reported a 58% y-o-y plunge in EBIT to RM37.2m (hit by a negative same-store sales growth or SSSG of 4%). Meanwhile, Malaysian operations had zero SSSG for the quarter due to weak consumer sentiment as well as temporary closure of 3 stores, leading to 1QFY14 EBIT falling by 13% y-o-y to RM29.7m. Group net margins dived to 3.7% (vs. 1QFY13: 7.2%).
Cut FY14-15F EPS by 22-27%. We have reduced our FY14-15F net profit by 22-27% to RM179m-RM200m based on lower margins and earnings from all major operating markets. We remain cautious on PRG’s nearterm earnings outlook, as there could be higher expenses from more new store openings next year. DBSV HK has just cut PRG earnings – which represent about half of Group earnings – by 17-18% for FY13-14 (FYE Dec).
Downgrade to Fully Valued. We downgrade Parkson to Fully Valued (from Hold) with RNAV-based TP of RM3.00 (from RM3.30) after cutting PRG’s TP to HK$2.54 (from HK$2.92). Parkson’s current valuation is unattractive relative to PRG and PRA as its overall market cap is trading at a huge 40% premium to its combined share of the market cap of both PRG and PRA (vis-a-vis a historical average discount of 12%).