- We reaffirm our BUY recommendation on Parkson Holdings (PHB) with an unchanged fair value of RM2.85/share, pegged to 22x PE on CY15F earnings. Stripping out its net cash, PE stands at 7x.

- Following a meeting with PHB’s senior management team, we remain committed to our investment thesis that centres on PHB rebuilding and reinventing itself.

- Admittedly, share price performance has been rather weak, partly due to the sell down by Vietnam ETF fund and the loss of arbitration case by 53%-owned Parkson Retail Group. However, these have been discounted by the market given its depressed share price.

- Management remains committed to its two-prong strategy to boost sales/psf and gross profit margin.

- PHB is repositioning its business from a departmental store to a lifestyle concept retail business, by allocating NLA for F&B to provide a more complete shopping experience. It is also undergoing a regional-wide branding exercise by splitting into three segments –targeting the upper end, medium-to-upper end and low-to-medium end.

- We understand that the company is in the midst of registering the “Centro by Parkson” trademark underpinned by the success of Centro branding in Indonesia which targets the low-to-medium segment. PHB plans to roll out this concept for its other markets.

- Management is shifting its merchandising mix to target the younger crowd. Its brand building phase is further accelerated by the revamp of its merchandising team into a buying team due to more accountability over the products and brands stocked in store.

- More importantly, there is greater focus on investments in exclusive brands (outright brands) and in-house labels rather than consignment given the better margins. PHB had just launched an in-house clothing line called Marq and Mave in Malaysia.

- To further improve sales, PHB recently embarked on a low base business model, Parkson Credit in November 2014 in Malaysia (similar to AEON Credit). The company is looking to invest in a real-time IT system to provide on-time tracking of absolute and slow moving goods. This enables PHB to better manage inventory and monitor sales level.

- While earnings recovery is not expected anytime soon, we expect to see more apparent results from PHB’s repositioning over the medium term. We understand that China’s negative SSSG did not deteriorate further.

Source: AmeSecurities Research - 9 Apr 2015