Period  2Q13/1H13

Actual vs. Expectations The 1H13 net profits (NP) of RM133.3m came in far below the consensus and our estimate, making up only 35.7% and 36.0% of the street's estimate and our forecast of RM373.2m and RM370.2 respectively.

Dividends  No dividend was declared during the quarter. We have cut our full-year FY13 DPS forecast to 2.8 sen (from 4.4 sen previously) to reflect our earnings estimates cut below. Our DPS forecast is based on a payout ratio of 47% and translates to a dividend yield of 2.8%.

Key Result Highlights QoQ, the 2Q13 revenue increased by 11.2% due to higher sales from Malaysia, China and Vietnam. Meanwhile, the group's NP increased by 23.1%, lifted mainly by the improved revenue growth above.

 YoY, the 1H13 revenue rose slightly by 3.8% on the back of new store contributions as well as from the rise in same-store sales growth ("SSSG") from Malaysia and Indonesia (4.2% and 6.7% respectively), which cushioned the negative SSSG in China and Vietnam (-2.0% and -7.4% respectively). Despite the rise in revenue, the PBT fell by 9.4% YoY due to higher operating expenses, such as in staff cost (a 23.1% rise, which included a RM9.4m employee share-based payment), rental expenses (32.2%) as well as depreciation and amortisation (18.3%). The NP fell 10.8% in tandem with the drop in the PBT and on the back of a higher minority interest share.

Outlook  Parkson's earnings prospect remained cautiously optimistic as the economic growth is expected to be better in 2013 especially in China, which contributed about 82% to its profits in FY12.

 The company will continue its expansion plan of new stores in China (5-6 stores), Malaysia (2 stores), Vietnam (2-3 stores) and Indonesia (3-4 stores) as well as maintain its SSSG for China (5%), Malaysia (7-9%), Indonesia (9-10%) and Vietnam (10%). Thus, we have also revised our SSSG assumptions slightly higher accordingly.

Change to Forecasts  Post result review, we have raised our operating cost forecast on likely higher rental expenses and initial losses for its new stores, leading to a substantial cut in our FY13 and FY14 earnings estimates by 19.0% and 23.5% respectively to RM299.7m and RM319.7m respectively.

Rating    Maintain MARKET PERFORM

Valuation  Despite the cut in estimates, we have, however, upgraded our TP to RM4.88 (from RM4.50 previously) after adjusting the PER multiple for PRG and PRA used in our SOP valuation from their current market valuation to a 3-year average. This is to smooth out the current more volatile market prices and reflect a fairer long term valuation for the stock. We have applied a 25% discount to our full SOP valuation of RM6.50 to account for its 'pure' holding company status.

Risks  A slowdown in the global economy especially that of China, which would cut the purchasing power of consumers.

Source: Kenanga