- 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 off the exceptional item arising from store closure costs (SGD2.7mil) and gain from the disposal of a 48% stake in Odel PLC (SGD1.4mil), Parkson Retail Asia reported 9MFY15 net profit of SGD33mil (+3%).

- Despite the soft consumer sentiment in Malaysia, 3Q sales momentum improved significantly, supported by increased consumer buying prior to the GST implementation on April 1. SSSG improved to +8% compared to 2Q’s -7% and 1Q’s- 4%.

- Nevertheless, we expect Malaysia’s SSSG in the coming quarter to soften given the temporary setback from GST and challenging retail outlook. Consumer sentiment is envisaged to improve in the next six months.

- Vietnam SSSG contracted at a slower pace at -2% vs. -6% in 2Q.Vietnam should see bottomline improvement moving forward following the recent closure of the lossmaking Landmark Tower. Indonesia continued to show robust SSSG at 7% for 3Q.

- Store expansion pipeline remains healthy with five new stores earmarked for opening by end-FY15 – four in Malaysia and one in Vietnam.

- We are keeping our earnings estimate. We caution that an exceptional item of RM45mil is expected to be recognised in PHB’s books in the upcoming results. This relates to the payment of arbitral award arising from the loss of arbitration case in China.

- PHB results are expected to be released on 27 May.

- Valuations are undemanding for a regional department store operator with the stock trading at a forward PE of 16x. After stripping out the group’s net cash, valuations are even more attractive at an FY15 PE of only 8x on an ex-cash basis.

Source: AmeSecurities Research - 15 May 2015