Yesterday, Parkson Holdings Berhad (PHB) had proposed the distribution of RM0.10/share based on its entire issued and paid-up share capital to entitled shareholders for a total cash consideration of RM109.3m (or 17% of the RM641.1m proceeds) following the completion of an earlier proposed internal reorganisation. (Source: Bursa Malaysia)

Comments: Recall that PHB had previously entered into an agreement to dispose a 67.6% stake in its Singapore-listed subsidiary Parkson Retail Asia (PRA) to its Hong Kong-listed Parkson Retail Group (PRG) for a total sum of SGD228.5m (RM641.4m). We are pleasantly surprised by this development as PHB had stated that the proceeds from their internal reorganisation will mainly be utilised for business expansion, new investment opportunities and/or working capital over the next two years.

We understand from management that the purpose of the dividend distribution is mainly to reward existing shareholders. Assuming the proposed internal regorganisation and proposed distribution were both approved, PHB's NA per share is estimated to decrease to RM2.36 (from RM2.50 as at June 2014) while PHB's net gearing will potentially increase marginally to 0.67x (from 0.66x).

The disposal is expected to be completed by 4Q15 followed by the distribution of RM0.10/share by 1Q16. We estimate net dividend yields of ~8.4% in FY16E (ie 17sen/share). We maintain our 2015-17E forecasts for now, pending further details from management. Note that the aforementioned internal reorganisation would result in lower earnings contributions to PHB (should it be approved) as its effective equity interest in PRA will be diluted to 35.9%.

Source: Affin Hwang Capital Research - 18 Aug 2015