- We reaffirm our BUY recommendation on Parkson Holdings (PHB) with an unchanged fair value of RM3.40/share, pegged to an unchanged PE of 22x FY15F earnings – one standard deviation above its 5-year historical mean PE.

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

- This is seen as a positive move, in our view, given that this store has been lossmaking since its opening three years ago, largely due to high rental cost 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 loss-making store, in addition to its strategy to improve merchandising mix.

- The continued operating losses at the Hanoi Landmark Tower store has dragged losses further – operating losses for Vietnam and Myanmar doubled to RM3.1mil in 1QFY15 while Vietnam’s SSSG contracted to -5.5% in 1QFY15.

- PHB continues to expand and is earmarked to open a store in Danang on 11 January. Currently, PHB has a total of nine stores in Vietnam including that in Hanoi Landmark Tower.

- All said, we remain committed to the investment thesis of expected improved profitability from a low base, underpinned by improving SSSGs and margin uplift from a proactive store rationalisation and merchandising mix. The key valuation driver lies on the improvement in SSSG for China and monetisation of loss-making retail assets.

- On a positive note, PHB continues to engage in active share buybacks, providing downside risk to its share price.

- Valuation wise, the stock is trading at a forward PE of 16x. Stripping out its net cash, PE stands at an attractive 9x.

Source: AmeSecurities