Stock Name: PARKSON
Company Name: PARKSON HOLDINGS BHD
Research House: RHB

Parkson Holdings Bhd
(Aug 24, RM5.49)
Maintain outperform at RM5.52 with unchanged fair value at RM7.72: Parkson's 51.6% subsidiary, Parkson Retail Group (PRG)'s 1HCY2010 core net profit of 544.9 million yuan (RM252.3 million) or 17.9% year-on-year (y-o-y) was within our and consensus expectations, accounting for 47% of our and consensus earnings forecasts. PRG declared a first interim dividend of'' 0.06 yuan per share.

1HCY2010 same-store-sales (SSS) growth continues to be in line with our expectations at 10.7% y-o-y on the back of improving consumer sentiment.

We are projecting a 10% overall SSS growth for PRG for the FY2010 ending Dec 31 for China operations, which we believe should be achievable based on its 1H SSS growth and the upcoming festive season in 2HCY2010.

The company is seeing improved gross margins with overall gross margin rising marginally y-o-y by 0.2 percentage points to 19% due to reduced discounting in light of recovering consumer sentiment and improved market conditions.

Furthermore, commission rates also improved for both concession and direct sales to 19.3% and 16.9% in 1HCY2010 from 19.1% and 16.7% respectively in 1HCY2009.

Parkson is opening new stores and enhancing current ones. In our previous report on Aug 19, we highlighted that the group is expected to open a new store in Beijing by end-August. The group also plans to open a second store in Wuxi before the end of 3QCY2010, a first store in Zigong, Sichuan and a second store in Hefei city in 4QCY2010.

This is in line with our forecast of five stores for CY2010. In 2Q, the company began to enhance the Hefei and Xi'an Shidai stores. The work is expected to be completed by the end of the year, after which the stores will carry premium cosmetic brands and upmarket fashion brands.

Potential risks include a sharper than expected contraction in consumer spending in China, Malaysia and Vietnam.

Parkson's current share price of RM5.52 implies a 40% upside to our sum-of-parts derived fair value of RM7.72. We believe the current weak share price is an opportunity for investors to gain an exposure to China's retail growth through Parkson Holdings. Maintain 'outperform'. ' RHB Research Institute, Aug 23


This article appeared in The Edge Financial Daily, August 25 2010.