Parkson Holdings - Bargain on the shelves Buy

- Following a recent company meeting, we re-affirm our BUY rating on Parkson Holdings Bhd (PHB) with a revised fair value of RM6.20/share (vs. RM6.84 previously) as we rolled forward our sum-of-parts valuation base year to CY13F.

- While the recent share price weakness is mainly attributable to a weaker-than-expected 1Q results owing to soft sales at 51.5%-owned Parkson Retail Group (PRG), we believe the negatives have largely been priced in.

- We remain bullish about PHB’s long-term growth prospects as underpinned by:- 1) China’s robust consumption on the back of the country’s strong fiscal and political base towards maintaining GDP growth;  2) Solid expansion plans in Southeast Asia with a 14%-15% enhancement in GFA (gross floor area) per annum (p.a.) and; 3) Small but growing earnings stream from its shopping complex management arm (KL Festival City).

- As it is, China operations are well on track for an earnings recovery, with management maintaining a target SSSG of a mid-to-high single digit. To be sure, we understand SSSG in April rebounded to 7%, up from a mere 2% in 1QCY12 due to poor performances at both the Beijing and Shanghai flagship stores which make up ~10%-15% of PRG’s sales.

- Meanwhile, operations at principal markets under 67.6%- owned Parkson Retail Asia (PRA) continue to chalk up healthy SSSG, spurred on by positive consumer spending. Except for Vietnam, of which our SSSG forecast has been trimmed to 8% (vs. management-guided 10%) due to a slower-than-expected macro outlook, our SSSG of 8%-10% is maintained for Malaysia and Indonesia. 

- All in, our earnings for FY12F-14F have been trimmed by 8%-15% as we assume a lower average sales/GFA growth rate, as well as new outlet openings (Annually - China: 8 to 10, Malaysia: 2, Indonesia: 4 to 5, Vietnam: 2 to 3, Cambodia: 1). Nonetheless, our 3-year earnings CAGRstands at a solid 18%.

- Notwithstanding the narrowed valuation gap between PHB and HK-listed PRG, PHB remains a cheaper proxy for tapping into Southeast Asia’s robust consumption play. The group’s forward PE of 11x is well below its 5-year mean of 14x and closest peer Aeon Co (M) Bhd’s (AEON Mk Equity, Non-rated) 15x. 

- Key catalysts include:- 1) Faster-than-expected rollout of new stores; 2) Better cost management initiatives and; 3) Potential acquisition of existing retail stores in  other geographical locations outside Southeast Asia. 

Source: AmeSecurities