PP 7767/09/2010(025354)

2 March
RHB Research2010
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

B r ief ing Not e

2 March 2010
MARKET DATELINE

Parkson Holdings Share Price

Fair Value
:
:
RM5.59
RM6.40
Better Outlook For 2010 Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (Parkson; Code: 5657) Bloomberg: PKS MK

Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/NTA P/CF ROE Gearing NDY
June (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (x) (%)
2009a 2583.7 263.2 25.4 31.6 21.2 - 2.9 29.0 15.0 net 0.9
2010f 2882.9 303.2 29.3 15.2 18.4 29.0 3.5 17.9 15.3 net 1.3
2011f 3600.7 376.2 36.3 24.1 14.9 38.0 4.4 8.7 16.5 net 1.5
2012f 4369.3 476.4 46.0 26.6 11.7 44.0 5.6 6.3 17.9 net 1.7
Main Board Listing /Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ SSS targets. Parkson is maintaining its SSS growth target for China of 10-12% Issued Capital (m shares) 1036.41
yoy for CY10, which is in line with our forecast of 10% growth yoy for CY10. For Market Cap(RMm) 5586.3
Malaysia and Vietnam, management targets SSS growth of 3-4% and 15-20%
Daily Trading Vol (m shs) 1.4
yoy respectively for FY10, which is similar to our projected 4-5% p.a. growth for
52wk Price Range (RM) 3.15-6.20
Malaysia and our 15-18% p.a. growth forecasts for Vietnam. We understand that
Major Shareholders: (%)
the overall lower SSS growth for PRG of 7.5% in CY09 (vs. 12.1% in CY08) was
Cheng family 35.0
mainly due to its Beijing and Shanghai operations (which contribute
Lion Industries 20.0
approximately 23% of total revenue). PRG Bejing’s SSS dropped by 3% yoy
while its Shanghai SSS only grew by 2% yoy. Nevertheless, YTD-Feb 10, Parkson
highlighted that PRG’s SSS grew by more than 10% yoy.
FYE June FY10 FY11 FY12
♦ PRG’s FY12/10 earnings expected to grow by >20%. Parkson expects EPS chg (%) - - -
PRG’s earnings to grow by more than 20% in FY12/10 driven by: 1) 10% SSS Var to C.EPS (%) 0.9 (4.5) 4.5
growth yoy and the opening of 4-5 new stores in CY10, which would drive topline
growth by >20%; and 2) improvement in operating margins by 50bps due to PE Band Chart
greater operating leverage from the opening of new stores, less value-driven
promotional activities as well as greater concessionaire vs. direct sales PER = 21x
contribution (currently at 88% vs. 12%), which yield higher margins. This would PER = 17x
be slightly offset by higher depreciation charges (+20bps) mainly from the PER = 13x

opening of its flagship Beijing outlet. This is in line with our forecast of an
earnings growth for PRG of 26% yoy in FY10.
♦ Opened 7 new stores in 1HFY10. Parkson opened seven new stores in
1HFY10 i.e. Lanzhou (Sept 09), Changsu (Sept 09) and Shijiazhuang (Dec 09) in
China; Kota Bahru, Kota Kinabalu (Aug 09) and Kluang, Johor (Dec 09) in
Malaysia; and Ho Chi Minh (Dec 09) in Vietnam. In the pipelines are the openings
of Shaoxing (May 10), Beijing (Jun 10), Zigong, Sichuan (4QCY10) in China; and Relative Performance To FBM KLCI
Penang (3QCY10), Kota Kinabalu (2010-2011) and Kuching (2012) in Malaysia.
This would bring total new stores in China to 44-45 in CY10, in Malaysia to 35
and in Vietnam to 6-7 in FY10, which is in line with our forecasts.
♦ Injection of two to three Parkson-held China stores to PRG. Parkson
expects the injection of one Parkson-held China store into PRG in 2QCY10 and Parkson
another one or two in 2HCY10. The valuations of the injection would be
comparable with the previous injections, estimated at 10-15x PER. We have yet
to input the injections into our forecasts and would only do so once it is
FBM KLCI
completed.
♦ Forecast. No changes to our earnings forecasts.
♦ Risks. Any contraction in consumer spending in China, Malaysia and Vietnam.
However, we do not expect a contraction in consumer spending in China to occur
in the near term given the stimulus packages in place by the Chinese government
aimed to spur consumer spending.
♦ Investment case. We have increased our SOP-based fair value to RM6.40
(from RM6.00) after increasing our target PER for PRG to 24x (from 22x) based Hoe Lee Leng
on the average one year forward PER for China department store operators for (603) 92802239
hoe.lee.leng@rhb.com.my
FY10. Maintain our Outperform recommendation on the stock.

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 2 March 2010

Table 2: SOP valuation

Valuation method RNAV (RMm) RNAV (RMm)
Share of PRG market value (51.6% stake) Indicative FV of HK$11.95, based on PER of 7,260.3
24x CY10 EPS
20x holding company discount to PRG 5,808.2
Parkson Vietnam 11.5x CY10 EPS 114.5
Parkson Malaysia 14.0x CY10 EPS 336.1
6 excluded stores in China 10x CY10 EPS 306.8
Net cash / (debt) ex-PRG (which excl. cash to purchase 438.1
Suntrans Building) as at Dec-09
Total 7,003.70
Fully diluted number of shares 1,093.6
Target price (RM) 6.40

Table 3. Earnings Forecasts Table 4. Forecast Assumptions

FYE June (RMm) FY09 FY10F FY11F FY12F FYE June FY10F FY11F FY12F

Turnover 2583.7 2882.9 3600.7 4369.3 China ^

Turnover growth (%) 15.2 11.6 24.9 21.3 - New stores 4 4 5
- Same store sales growth 10.0% 11.0% 11.0%
EBITDA 845.7 936.4 1135.9 1375.2
EBITDA margin (%) 32.7 32.5 31.5 31.5 Vietnam
- New stores 3 3 3
Depr&Amor (125.2) (143.4) (163.6) (165.4) - Same store sales growth 15.0% 18.0% 18.0%
Net Interest (61.7) (47.3) (26.2) (11.7)
Associates 0.7 0.3 0.3 0.3 Malaysia
- New stores 2 2 1
Pretax Profit 659.5 747.8 946.3 1198.4 - Same store sales growth 4.0% 5.0% 5.0%
Tax (163.6) (175.7) (236.6) (299.6)
Minorities (232.7) 268.9 333.6 422.4
Net Profit 263.2 303.2 376.2 476.4
Source: Company data, RHBRI estimates
^ Forecast assumptions for CY09, CY10 and CY11.

Chart 1: Parkson Technical View Point

♦ The share price of Parkson began a sideways trend,
after a successful rally that brought it to a one-year
high near RM5.70 in Aug 2009.

♦ The stock launched a strong rally in early Jan 2010,

breaking off the sideways trend and chalked up a
fresh year high of RM6.20.

♦ But almost immediately, it triggered a strong

pullback, plunging to below the RM5.45 important
level, before hitting a new year low of RM5.11.

♦ In a recent recovery, it penetrated RM5.45, and

ended yesterday with another positive candle at
RM5.59.

♦ Technically, we expect an extension of this upswing

if it sustains at above the 40-day SMA of RM5.54.

♦ Further resistance is at RM6.30, while a stronghold

is seen at RM5.45.

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