Parkson’s  FY13  earnings  were  below  expectations,  representing  only 84%  and  83.2%  of  consensus  and  our  full-year  estimates.  Net  profit contracted  by  36.8%  y-o-y  due  to  weak  performance  from  China  and Vietnam, coupled with  higher operating costs arising from  the opening of new stores. Maintain NEUTRAL, with a lower FV of MYR3.60.  
 
- Weak  year.  Parkson’s  topline  grew  by  a  marginal  2.4%  y-o-y,  largely driven by healthy revenue growth from its property management (+63% y-o-y)  and  retail  (+2%  y-o-y)  segments.  Malaysia  and  Indonesia operations  recorded  positive  same-store-sales  growth  (SSSG)  of  4.5% and 5.6% respectively, mitigating the negative SSSG in China (-1%) and Vietnam (-0.7%).  Property management revenue grew 63% y-o-y vs its eight  months  of  operations  at  KL  Festival  City  mall  in  the  previous financial  year,  due  to  a  high  occupancy  of  98%  and  better  operating efficiency.  However,  net  profit  plunged  36.8%  y-o-y  as:  i)  China  and Vietnam operations remained challenged and, ii) weaker margins due to losses from the new stores. Compared to 3Q13, 4Q sales and earnings moderated by 14.1% and 59.3% q-o-q as 4Q is seasonally weakest.

- Margin.  The group’s merchandising  gross  margin  shrank  by  50bps,  to 18.8%  from  19.3%  y-o-y.  Likewise,  EBIT  trended  lower  to  16.5%  from 24.4%  due  to  new  store  opening  expenses  and  weaker  sales  growth from China and Vietnam.

- Forecasts.  In  view  of  the  continued  weakness  in  its  China  operations and  softer  numbers  from  Vietnam,  we  revise  down  our  FY14  earnings forecast  by  16%.  Key  investment  risks  will  be  significant  slowdown  in consumer spending in China and Asean.

- Maintain NEUTRAL. After trimming our earnings and rolling forward our valuation  to  CY14  (previously  CY13),  our  SOP-based  FV  dips  to MYR3.60  (from  MYR4.09).  Although  it  is  trading  at  a  relatively  cheap valuation of 13x FY14 EPS compared to its 3-year historical traded P/E of 15x, we maintain NEUTRAL on Parkson as we believe its share price may  continue  to  be  weighed  down  by  sustained  weak  performance  at Parkson  Retail  Group  (3368  HK;  NR)  and  softening  growth  at  Parkson Retail Asia (PRA SG; NEUTRAL, FV: SGD1.28).

Source: RHB