News  In an announcement to Bursa Malaysia, Parkson Holdings said Software Holdings PLC and Strategic

Retail (Private) Limited are jointly offering to buy the remaining stakes in Odel PLC (fashion retailer listed in Colombo Stock Exchange) it does currently not own from minority shareholders (of which 67.6%-owned Parkson Retail Asia is one of them) at Rs.22 cash/share or at a 3.9% discount to Odel Plc’s last traded price of Rs.22.90/share.

Comments  For illustration purposes, at Rs.22/share (equivalent to RM0.54/share), Parkson Retail Asia’s 47.46% stake in Odel PLC will net in proceeds of RM70m or 6.3 sen/Parkson Holding’s share. The RM70m proceeds will increase Parkson Holdings’ net cash by 7.7% from RM907.5m to RM977m and to 89 sen/Parkson Holding’s share. Based on Bursa Announcement dated 31 July 2012 by Parkson Holdings, Odel PLC stake was purchased by Parkson Retail Asia at a price of between Rs.23.46 to Rs.23.50/share.

 Based on Parkson Retail Asia FY14 income statement, share of profits in its associate, Odel PLC, only contribute SGD0.9m (equivalent to RM2.22m) which is <1% of our earnings forecasts.

Outlook  The stage is set for Parkson Retail Group’s earnings to slowly recover backed by expected improvement

in QoQ same-store-sales growth (SSSG) and margin uplift from a proactive store rationalisation/optimisation plan, including closure of non-profitable stores as well as faster-than-expected stores turnaround. Standing testimony to the

increasingly strong (or perceived to be strong) sequential recovery in Parkson Retail Group (PRG), some analysts surveyed by Bloomberg consensus have turned more positive and upgraded the stock to a Buy.

Forecast  No change to our earnings forecasts.

Rating & Valuation Maintain Market Perform with an unchanged SoP target price of RM3.12. Valuation appears

undemanding; PRG is currently trading at trough valuations of which the market has already priced in a multi-year low since 2009. PRG is presently trading at 15.6x consensus FY15E EPS or 40% below its 6-year historical mean of 24x of which we believe already factored in the weaknesses of PRG’s operations. Similarly, Parkson Holdings is trading at trough PER valuations of 14x PER compared to historical average of 19x.

Risks to Our Call A stronger-than-expected economic recovery in China.

Source: Kenanga