- We re-affirm our HOLD on Parkson Holdings Bhd (PHB), with an unchanged fair value of RM4.43/share, based on a sum-of-parts valuation for FY14F.

- We continue to foresee Parkson Retail Group’s (PRG) near-term SSSG to be in negative territory for FY13F, in light of the slower economic growth. More importantly, the proliferation of malls and weakening competitive advantage due to an older portfolio of stores vis-a-vis its peers (i.e. Golden Eagle and Intime).

- In addition, the rising concern over the H7N9 bird flu threat appears to have negatively impacted PRG’s share price performance. PHB’s share price hit a historical low of RM4.16/share last week. YTD, PHB has retraced by 14% and underperformed the FBM KLCI by 9%.

- The outbreak could potentially lead to a deceleration in sales growth, although it is said to be somewhat under control for now and is yet to be called a pandemic. Logically, such outbreaks tend to have a “stay-home-more” effect on consumers, and hence, result in deterioration in footfalls. No change to our China’s SSSG forecast of -2%.

- Our channel checks suggest softening of retail spend in Malaysia, due to a more prudent and cautious consumer sentiment ahead of the elections. An improved sales sentiment is expected, post election in 2HCY13.

- On the expansion front for China, 3 stores (Panzhihua, Datong and Chongqing 4) are earmarked for opening in 4QFY13F. An additional 4 stores are also scheduled for opening in CY2013. China’s expansion has been scaled back to 5 new stores p.a. (vs. 8-10 previously) on a more selective basis. The opening of the first Parkson in Myanmar had been postponed to May.

- Overall, PHB’s earnings outlook continues to remain unexciting and is expected to shrink by 42% in FY13F. China remains as the dampener in the near term, given its significant EBIT contribution (75%). China’s same-store-sales growth (SSSG) recovery path is envisaged to remain bumpy and any rebound will be at a gradual pace, in our view.

- A resumption in earnings growth is anticipated in FY14F, on the basis of improved macroeconomic conditions, recovery in SSSG and narrowing losses from new stores opening.

- The upcoming results are scheduled for released in May, starting with PRA (9 May), followed by PRG (tentatively 24 May), and PHB (27 May) thereafter.

- Trading at a PE of 14x FY14F, valuation looks overvalued in view of the lacklustre earnings growth, particularly for PRG’s decelerating SSSG. PHB is trading at a 57% discount to local peer, AEON Co (M) Bhd’s (AEON Mk Equity, Non-rated) 22x on consensus earnings.

Source: AmeSecurities