Parkson Holdings Bhd
(Jan 8, RM2.50)
Maintain buy with a target price of RM3.40: We reaffirm our “buy” recommendation on Parkson Holdings Bhd with an unchanged fair value of RM3.40 per share, pegged to an unchanged price-earnings ratio (PER) of 22 times financial year 2015 (FY15) earnings — one standard deviation above its five-year historical mean PER.

Parkson has temporary closed its store at the 72-storey Hanoi Landmark Tower in Vietnam. We are not surprised by the closure of this loss-making store given Parkson’s proactive store management.

This is seen as a positive move, in our view, given that this store has been loss-making since its opening three years ago, largely due to high rental costs and low footfall traffic. 

We understand that the temporary closure is pending the renegotiation of some long-standing matters with the landlord.

As mentioned previously, we believe that the swing factor for an improvement in Vietnam’s operation largely hinges on the closure of this store, in addition to its strategy to improve the merchandising mix. 

The continued operating losses at the Hanoi Landmark Tower store has dragged losses further — operating losses for Vietnam and Myanmar doubled to RM3.1 million in the first quarter of FY15 (1QFY15) while Vietnam’s same-store sales growth (SSSG) contracted by 5.5% in 1QFY15.

Parkson continues to expand and is earmarked to open a store in Danang, Vietnam, on Jan 11. Currently, it has a total of nine stores in Vietnam including the one in the Hanoi Landmark Tower.

All said, we remain committed to the investment thesis of expected improved profitability from a low base, underpinned by improving SSSG and margin uplift from a proactive store rationalisation and merchandising mix.

The key valuation driver lies in the improvement in SSSG for China and monetisation of loss-making retail assets.

On a positive note, Parkson continues to engage in active share buy-backs, providing downside risk to its share price. Valuation wise, the stock is trading at a forward PER of 16 times. Stripping out its net cash, PER stands at an attractive nine times. — AmResearch Sdn Bhd, Jan 8.

This article first appeared in The Edge Financial Daily, on January 9, 2015.