- We reaffirm our SELL recommendation on Parkson Holdings Bhd (PHB), with an unchanged fair value of RM3.00/share, based on a sum-of-parts valuation.

- Our fair value is currently under review pending the release of PHB’s 1HFY14 result, which is scheduled for 25 Feb.

- Parkson Retail Asia (PRA) reported a core net profit of SGD23mil (-4% YoY) for 1HFY14.

- The overall 1HFY14 same-store-sales growths (SSSG) for Malaysia (+0.1%) and Indonesia (+5.8%) are still within the positive territory. Vietnam had a SSSG of -2%.

- The underlying weak 2QFY14 SSSG for Malaysia of +0.2% were affected by the flood crisis in the east coast of Peninsula Malaysia and the tuberculosis scare in Kota Kinabalu.

- Following the government subsidy rationalisation exercise and the upcoming implementation of GST, consumption growth in Malaysia (26% of PHB’s revenue) is expected to moderate given the tightening of wallets for discretionary items. As such, we do not expect traditionally stronger sales (due to Chinese New Year) in the upcoming results.

- The group expects SSSG (3Q: +7.3%) in Indonesia to remain robust despite the inflationary pressure from the price hike in subsidised fuel and a weakened Indonesia Rupiah.

- We remain cautious on PHB, particularly due to further downside from China’s lacklustre earnings growth (65% of PHB’s revenue).

- While the group have scaled back its expansion in China and had embarked on efforts to close non-performing stores, we still do not see any signs of improvement. Furthermore, China’s departmental stores continued to lose market share to e-commerce and new shopping malls. Parkson Retail Group result will be release on 20 Feb.

- Valuation wise, the stock is trading at 20x PE for FY14F, which is unjustified in view of the earnings vulnerability (including the depreciation Rupiah) and headwinds from increased competition. 

Source: AmeSecurities