KUALA LUMPUR (Oct 13): Parkson Holdings Bhd (PHB)'s failure to sell its 67.6%-owned Parkson Retail Asia Ltd (PRA) for RM641.42 million cash to PHB's Hong Kong-listed subsidiary is not entirely bad news, an analyst said.
AmResearch Sdn Bhd analyst Cheryl Tan said if PRA had been sold to Hong Kong-listed Parkson Retail Group Ltd (PRG), PHB would see lower earnings contributions from PRA because of its reduced PRA stake.
"Note that our present forecasts reflect the new organisation structure. We see some upside to our current earnings estimates as the disposal of PRA by PHB would have resulted in lower earnings contributions to PHB moving forward given its reduced stake in PRA.
"In other words, PRA's earnings will now be consolidated vs. equity accounted for had the reorganisation taken place. All in, we are placing our 'buy' recommendation and fair value of RM1.60/share (for PHB), which is based on a PE of 9x over FY16F earnings, under review pending a meeting with management and our re-initiation report," Tan said.
At Bursa Malaysia, PHB shares fell as much as two sen or 2% to RM1.07. At 12.30pm, PHB settled at RM1.08 for a market capitalisation of RM1.18 billion.
The stock had fallen 52% this year, underperforming the FBM KLCI's 3% drop.
PHB's current share price compares with its latest reported net assets per share of RM2.43.
Yesterday, PHB told Bursa Malaysia that independent shareholders of PRG, a 53.1%-subsidiary of PHB, did not approve the proposed internal reorganisation at an extraordinary general meeting.
PRG shareholders holding 63.44% of the entitled shares voted against the plan. This compared to shareholders holding 36.56%, which supported the plan.
In Malaysia today, Tan said AmResearch also noted Parkson group's strong balance sheet. Tan said even without the RM641.42 million cash proceeds from the thwarted transaction, PHB would still be able to finance its business expansion.
Tan said PHB, PRA and PRG were in net cash positions. "As PHB, PRA and PRG have strong balance sheets (all net cash), we do not foresee any funding issues for the group," she said.
"We understand that the cash proceeds of RM641 million had, prior to the August announcement, only been earmarked for business expansion, new investment opportunities and working capital purposes. These include the funding for the construction of PHB's Cambodia mall," she said.
(Note: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)