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

Parkson Holdings Bhd
(Oct 25, RM5.85)
Upgrade to buy at RM6 with target price RM7.57: Parkson recorded a strong same store sales (SSS) growth in the first six months of FY10 with +11% recorded in Malaysia, +26.9% Vietnam, and 11.3% China.

The strong SSS growth was mainly driven by its aggressive expansion strategy throughout the year. Eight new stores were opened in Kota Baru, Kota Kinabalu, and Kluang (Malaysia), Changsu, Lanzhou, Shijiazhuang, and Shaoxing (China), and Ho Chi Min City (Vietnam).

The management is committed to continue with its aggressive expansion plans in the future. Parkson expects to open at least five new stores in China and one or two new ones in Malaysia and Vietnam in the immediate term.

So far, Parkson has 35 stores in Malaysia, six in Vietnam, and 46 in China. Note that Parkson's operation in China is run by the Parkson Retail Group (PRG) in which Parkson has 51.5% equity interest. In the future, Parkson will transfer all its direct owned stores for PRG to operate. For that, Parkson expects to spend more than RM200 million on capex.

Parkson management reaffirmed that Parkson Cambodia will start operations in 2012, in addition to seriously looking into the Indonesian market.

The penetration strategy into the highly populated nation will bode well for the group as the company's earnings growth is primarily driven by new store openings.

We are positive on this as Indonesia and Cambodia have a combined population in excess of 200 million people, at least seven times bigger than Malaysia.

Concessionaire sales contribute about 73% of the annual revenue in Malaysia with 90% in China and 92% in Vietnam.

Moving forward, Parkson will focus to increase its revenue contribution by concessionaire sales, which basically include the commissions that come from the sales of tenants in Parkson stores.
Parkson does not have a formal dividend policy but has been consistently paying dividends to its shareholders. Parkson expects to pay about 30% of net profit as dividend in the future, which translates into 1.6% dividend yield (FY11).

We have made some adjustment to our earnings forecast in tandem with the aggressive expansion plans by Parkson. As a result, FY11 earnings have been bumped up by 16% to RM369 million. Hence, we upgrade our call to a 'buy' from 'outperform' with a target price of RM7.57 based on sum-of-parts valuation. Total return is at a sterling 27.8% including 1.6% dividend yield. ' BIMB Securities Research (Oct 26)


This article appeared in The Edge Financial Daily, October 27, 2010.