Parkson  Holdings’  1QFY14  numbers  fell  below  consensus  and  our estimates.  Earnings  dropped  by  47.9%  y-o-y,  largely  due  to  weaker performance  across  the  region,  except  for  its  Indonesian  operation. Maintain NEUTRAL,  with a new MYR3.40  FV (from MYR3.60), as we trim our FY14-15 estimates by 19-30%.

• Another  weak  quarter.  Parkson’s  1QFY14  sales  improved  marginally by 0.9% y-o-y, mainly driven by decent revenue growth from its  property management (+4.5% y-o-y) and retail (+0.8% y-o-y) segments. Out of all its regional operations, only Indonesia managed to register positive y-o-y same-store  sales  growth  (SSSG),  at  3.9%.  SSSG  was  at  -0.1%  for Malaysia,  -1.1% for Vietnam,  and  -4.2% for China operations.  Revenue from  property  management,  meanwhile,  grew  4.5%  y-o-y  with  an impressive occupancy rate of about 99%.   However, earnings contracted by  47.9%  y-o-y,  due  to  a  challenging  operating  environment,  which included:  i)  a  weaker  performance  in  Malaysia  due  to  the  temporary closure of three performing stores for major renovations, and ii) slower China  operations,  due to  the impact from  losses incurred by  new stores and certain non-comparable expenses, as well as  the temporary closure of its  Shanghai flagship store for renovation  works.  Compared to  4Q13, 1Q14  revenue  and  earnings  were  stronger  by  3.7%  and  1.9%respectively, supported by festive season shopping.
• Margins  weakening.  The  group’s  merchandising  gross  margin  shrank by 30bps, to  19.3% from 19.6% y-o-y.  Its  EBIT margin  also declined  to 8.5% from 15.8% y-o-y, no thanks to higher operating expenses (+8.8% y-o-y) arising from new store opening and flat revenue growth.
• Risks.  The  key  investment  risk  will  be  a  significant  slowdown  in consumer spending in China and Asean.
• Maintain  NEUTRAL.  In  view  of  the  continued  weakness  in  its  China operations and softer SSSG in Malaysia and Vietnam, we are cutting our FY14 and FY15 earnings forecasts by 31.7% and 18.5% respectively. Its SOP-based  FV  is  reduced  to  MYR3.40  from  MYR3.60.  Maintain NEUTRAL,  as  we  believe  its  share  price  may  continue  to  be  weighed down by the weak results.

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Company Profile
Parkson Holdings is principally involved in operating department stores in Malaysia, China and Vietnam. It holds a 51.6% stake in Hong Kong-listed Parkson Retail Group.

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Source: RHB