On  24  Dec  2014,  Megan  Mastika,  a  wholly  owned  subsidiary  of  Parkson Holdings Berhad (PHB), had entered into two conditional sale and purchase agreement (SPA) with Ayer Keroh Resort (AKR):

i)  proposed  acquisition  of  100%  equity  interest  in  Dimensi  Andaman  SB (DA) from AKR for total cash consideration of RM53.7m

ii) proposed acquisition by Megan Mastika for 6-acres of land in Kawasan Bandar XLII, Negeri Melaka for a total cash consideration of RM39.2m (Source: Bursa Malaysia)

Comment:  We  are  not  surprised  by  the  acquisition  as  management  had earlier indicated its new strategy to concentrate on constructing and owning key "premium" shopping malls with net lettable areas (NLA) of not less than 1m square feet (sqft). The new Lion City Land (8.2-acres of DA land + 6-acres of AKR land) will include the development of its Melaka Parkson Mall which  is  targeted  to  be  completed  by  2017  together  with  other  mixed development purposes.

The  proposed  acquisition  is  targeted  to  be  completed  by  1QCY15.  We understand  that  the  purchases  will  be  internally  funded.  We  believe  that funding will  not  pose an issue as PHB is sitting on a net cash position of RM950.2m as at 1QFY15.

While we are cautiously optimistic on its plans to develop another income stream, which should be positive for the group in the long-term; we believe that  the  high  start-up  costs  for  its  new  malls  will  continue  to  pressure earnings in the coming years.

Thus,  we  keep  our  earnings  forecast  unchanged.  Maintain  SELL  with unchanged SOTP-based TP of RM2.17

Source: Affin Hwang Capital Research - 26 Dec 2014