Parkson’s  9MFY14  earnings  were  below  consensus  but  within  our expectations.  The  weaker  numbers  reported  by  China’s  operations continued  to  drag  down  the  group’s  earnings.  Maintain  SELL  with  FV unchanged  at  MYR2.25  due  to  the  softer  numbers  from  its  Chinese operation and the lack of near-term catalyst.

• In  line.  Parkson  Holdings  (Parkson)’s  9MFY14  sales  improved marginally by 2.9% y-o-y, mainly underpinned by:  i) positive    same-store sales growth (SSSG) from Malaysia (+0.1% y-o-y) and Indonesia (+6.7% y-o-y), and ii) a 5.7% y-o-y revenue growth in its property and investment holdings  division  contributed  by  KL  Festival  City  shopping  mall.  This mitigated  the  weaker performance from  the group’s  China (SSSG:  -6% y-o-y)  and  Vietnam  (SSSG:  -3.8%  y-o-y)  operations.  Net  profit moderated  by  47%  y-o-y  in  9MFY14,  mainly  dragged  down  by  lower operating profit from  Parkson’s  China’s operation  (-53.7% y-o-y) due to:i)  weaker consumer sentiment,  ii)  increasing competition  –  especially  inthe  e-commerce  segment,  iii)  the  impact  of  losses  incurred  by  new stores,  and iv)  the temporary closure of its Shanghai flagship store for renovation works. These factors  more than offset the higher contribution coming  from  the  group’s  property  unit  (EBIT:  +9.2%  y-o-y).  Compared with 3Q13, revenue rose by 4.3% while earnings slipped by 28.4%.
• Lower  margins.  Merchandising  gross  margin  dropped  to  18.9%  in 9MFY14  from 19.1% y-o-y.  9MFY14  EBIT and PBT margins were lower by 8% and 8.5% y-o-y respectively, no thanks to muted sales growth and higher  operating  expenses  (+11.1%  y-o-y)  arising  from  new  store openings.
• Maintain  SELL.  Moving forward, Parkson  should  continue to open new stores in China (4-5 stores) and South  East Asia (Malaysia: one store, Vietnam: one store, Indonesia: five  stores). It is also  aiming  to achieve decent  SSSG.  Given  the  in-line  results,  we  are  not  changing  our forecasts  at  the  moment.  Maintain  SELL  with  an  unchanged  FV  of MYR2.25 based on SOP valuation. We expect its share price to continue to  soften  due to the  disappointing  numbers and a lack of immediate rerating catalysts. 

Source: RHB