- We reaffirm our SELL rating on Parkson Holdings (PHB) with an unchanged fair value of RM3.00/share (Under Review), based on a DCF valuation.

- Parkson Retail Group (PRG), which is 51.6% owned by PHB, reported FY13 earnings of RMB354mil (-141% YoY).

- Gross sales proceed and revenue grew by 4.3% and 1.5% respectively on a YoY basis. - Same-store sales growth (SSSG) declined by 1.8% and merchandise gross margins contracted by 17.5% vs. FY12’s 18.1% for FY13.

- The weak earnings growth is attributed to the temporary closure of Shanghai flagship store, start-up losses of new stores, and disruption of subway construction.

- The negative SSSG were further pressured by weaker discretionary spending, intensifying competition, weak demand and the impact of China’s anti-corruption measures.

- During the financial year under review, PRG closed one underperforming store and terminated the management contract of a managed store.

- While we are yet to see a recovery in China’s domestic consumption, PRG still intends to continue expanding with five new stores each year. PRG opened six new stores in FY13.

- Our estimates are left unchanged with our fair value under review for now, pending the release of PHB’s 1HFY14 results on 20 Feb.

- The stock is trading at an uncompelling FY14F PE of 20x (above its 5-year historical average of 15x) given its earnings vulnerability and China’s shrinking market share against e-commerce players and new retail malls.

- The re-emergence of the bird flu could also result in a short-term overhang due to weakening consumption sentiment. 

Source: AmeSecurities