AmResearch sees exciting times ahead for Parkson

AmResearch sees exciting times ahead for Parkson

Tags: AmResearch | Brokers Call | Parkson

Written by Financial Daily
Tuesday, 28 July 2009 11:57

AMRESEARCH has initiated coverage on PARKSON HOLDINGS BHD [ PARKSON 5.400 -0.130 (-2.351%) ] (PHB) with a buy recommendation and a sum-of-parts (SOP) fair value of RM6.60 per share.

The valuation was derived by pegging the group’s core Hong Kong-listed Parkson Retail Group (PRG) at 22 times forecast earnings for CY10, Parkson Malaysia at nine times CY10 earnings and Parkson Vietnam at eight times CY10 earnings.

Being the retail gem of Lion Group, Parkson’s key driver of growth over the past few years had been its operations in Hong Kong and China, which contributed 69% to Parkson’s earnings, while Malaysia and Vietnam contributed 27% and 4%, respectively (FY08), said the research house.

It noted that Parkson was on firm ground post-restructuring and re-branding exercises, with FY09F earnings expected to grow 24% year-on-year (y-o-y) to RM250 million, on the back of a 3%-8% blended same-store sales (SSS) growth in FY09F.

“More importantly, we see better prospects going forward, with earnings growth of 30% and 34% y-o-y for FY10F-11F underpinned by increased spending on a consumer sentiment uptrend along with China’s economic recovery,” AmReserach said.

The research house added that there was tremendous scope for seven to 10 new stores per annum on average — two to three in Malaysia, four to five in China and one or two in Vietnam — potentially increasing Parkson’s total lettable area by 10%-12% to 750,000 sq m by end-2010.

Under management’s plans, the group planned to venture into other untapped markets, notably neighbouring Cambodia and Indochina at large.

“We expect a successful replication of its concessionaire model to power the group’s earnings in the future, with increased earnings from Vietnam to match that of Malaysia’s in three years.

“We see PHB as a cheaper proxy to PRG for exposure to China’s retail industry. We believe Parkson’s share price would continue to attract support given the current discount of 16%-18% to Parkson — due to the latter’s strong earnings composition in Parkson,” it noted.

AmResearch added that despite its expansion plans, the group was expected to remain on a net cash position on a growing cash pile going into FY09-11F, with cash flow per share increasing 31% to 77 sen/share for FY10F from 59 sen/share.

Parkson rose 15 sen to close at RM5.50 yesterday.


This article appeared in The Edge Financial Daily, July 28, 2009.