BUY (Fair Value: 2.65)

• We reaffirm our BUY recommendation on Parkson Holdings (PHB) with an unchanged value of RM2.65/share, pegged to 16x PE on FY16F earnings.
• PHB announced that it will be undergoing internal group reorganisation. This will see its 67.6% Singapore-listed Parkson Retail Asia (PRA) being parked under its 52.7% Hong Kong-listed Parkson Retail Group (PRG) (See Exhibit 1).
• The disposal of PHB’s entire stake in PRA to PRG’s wholly-owned subsidiary, Oroleon (Hong Kong) Ltd is for a cash consideration of SGD228mil (or RM641mil), representing a PE multiple of 12x based on PRA’s 12-month EPS ended 31 March 2015 of SGD0.042. The disposal price translates into SGD0.499/per share, which is at a 6.2% premium to PRA’s last traded price of SGD0.47.
• Upon completion of the proposed disposal of PRA, PHB’s effective equity interest in PRA will be diluted to 35.9% from 67.6% presently. The disposal is expected to be completed by 4QCY15, subject to a due diligence exercise and necessary approvals.
• The cash proceeds raise of RM641mil will be used for business expansion, new investment opportunities and working capital purposes. · Assuming that PRG funds the purchase consideration with internally generated funds, PHB’s gearing is estimated to reduce to 0.6x from FY14’s 0.7x. As at end- 9MFY15, PHB is sitting on net cash of RM1bil.
• We maintain our FY15F-FY17F earnings estimate for now, pending further details from management. The disposal will result in lower earnings contributions to PHB moving forward given its reduced stake in PRA.
• All in, Parkson’s transformation into a lifestyle concept retail business and regionalwide branding exercise remains intact. This should help sustain sales/psf, while the persistent brand building phase (i.e. investing in exclusive brands and in-house labels) bodes well for margins.
• The stock is presently trading at an attractive 9x FY16F PE, below its 5-year historical average PE of 19x.

Source: AmeSecurities Research - 16 Jul 2015