Parkson Holdings - Looking forward to a fruitful future?

News   Parkson Retail Asia (“PRA”), a 67.6% owned subsidiary of the company, has entered into a joint venture agreement with Yoma Strategic Holdings Ltd (“YSH”) and First Myanmar Investment Company Ltd (“FMI”) through its subsidiary, Parkson Myanmar for the establishment and operation of departmental stores  in the name and style of “Parkson Department Store” in Myanmar. The JV was proposed earlier on Aug 14, 2012.

 Subject to the fulfillment of the conditions precedent, the share capital of the JV will be increased from  the initial USD3 to USD3m with the shareholding proportion of Parkson Myanmar, YSH and FMI to be at the ratio of 70:20:10, respectively. 

 According to the previous announcement, under the JV, Myanmar’s first Parkson Department Store is expected to be located in FMI Centre in the Pabedan Township of Yangon. The store is likely to comprise 4 storeys with a build-up area of about 43k sq ft and is targeted to be opened for business by 31 March 2013.

  

Comments   We are positive on the news as this would be an opportunity for Parkson to strengthen and expand its network in Myanmar by leveraging on its partners’ expertise and strengths to gain first-mover advantage in the rapidly growing retail sector in the country. 

 We reckon that there is no material impact to the balance sheet of the company as the investment will be funded by internally generated funds of the group.      

Outlook  Sustainable earnings prospect are expected on the back of its new stores expansion plan with the management’s vision to maintain its SSSG (7-9% for China, 8-10%  for Malaysia, 10% for Vietnam and 8-10% for Indonesia). 

 Together with its recent corporate activities, we reckon that these plans will further enhance the future earnings outlook of the group in the long-run.

  

Forecast  Maintaining our earnings estimates as we also do not expect any material earnings contribution in the nearterm and also pending further clarifications with management on the potential contribution coming from its regional and domestic new store opening.

  

Rating Maintained MARKET PERFORM

  

Valuation   We are raising our TP from RM4.86 to RM5.13 based on a SOP valuation. While we are maintaining our view on Parkson Retail (HK) with a PER of 17.9x, we have increased the PER valuation of Parkson Retail Asia from 16x to 20x due to its bullish long-term Asean expansion and outlook.

 After assigning a 25% discount to our new full SOP valuation of RM6.84 (RM6.48 previously) to account  for its status as a ‘pure’ holding company, we have derived a new TP of RM5.13 for the company.

  

Risks  Risks to our call include a slowdown in the global economy, especially in China, which will cut down the purchasing power of consumers.

Source: Kenanga