· We are placing our BUY recommendation and fair value of RM1.60/share for Parkson Holdings Bhd (PHB) under review pending a meeting with management and our reinitiation report. PHB yesterday reported 1QFY16 earnings of RM63mil on the back of revenue of RM2.9bil (QoQ: +9%, YoY: +10%).

· Excluding the RM136mil (effective: RM92mil) exceptional gain, the group registered a core net loss of RM29mil (vs. core net profits of RM58mil in 4QFY15 and RM20mil in 1QFY15), missing our and consensus estimates. The exceptional gain stems from the partial disposal of PHB’s stake in Parkson Hanoi Co Ltd. Recall that PHB had pared down its stake in Parkson Hanoi from 75% to 45% back in June 2015, making the latter an associate from a subsidiary, previously.

· PHB’s key markets, namely China and Malaysia, had continued to register double digit declines in SSSG, ie. -10% and -15% during the quarter. In addition to the weak consumer sentiment which continued to be a drag on sales in both markets, its operations in China was also adversely impacted by intensifying competition while the implementation of the GST in April continued to weigh on its Malaysian business.

· Vietnam’s SSSG had narrowed to -3.6% in 1QFY16 vs. -7.2% in the previous quarter and - 5.5% in 1QFY15. With discretionary spending weak and competition still stiff, we believe this improvement was mainly due to the closure of its loss-making Landmark 72 store in January this year. Indonesia and Myanmar remain as PHB’s bright spots, with SSSG for the two up by 10% and 6%, respectively.

· Based on the recent media releases, we understand that PHB’s rebuilding and reinventing exercise remains intact. While these initiatives should be positive for the group in the long-term, we believe that the costs incurred from new business ventures and new stores during the gestation period (as reflected by its China operations) could weigh on its near to medium-term profits. As it is, its opex is higher by 20% QoQ and 11% YoY.

· PHB’s total number of stores had remained at 126 as it had only closed one store in China, but opened one new store in Malaysia during the quarter. We understand that PHB is looking to open a total of 10 new stores by end-FY16, i.e. 2 in China, 5 in Malaysia, 2 in Indonesia and 1 in Cambodia. 

Source: AmeSecurities Research - 25 Nov 2015