PublicInvest revises Parkson to Outperform, says worst is over

From The Star Online: Business
28th Aug 2013

KUALA LUMPUR: Following Parkson Holding’s latest quarter results which saw FY13 full-year earnings drop 36.7% to RM240.5mil year-on-year on weaker sales in China,PublicInvest Research says it believes the company’s performance has bottomed out and is upgrading its recommendation to Outperform.

Target price is, however, unchanged at RM4.17 for the stock, which closed Tuesday at RM3.30.

It says the company managed to end on a brighter note despite the expected weak China performance, with full year 2013 results meeting 101% and 98% of its revenue and earnings estimates for FY13.

According to the research house, year-on-year growth in revenues was marginal at 2%, or RM3.5bil, due to unfavourable global sentiments and weaker discretionary spending.  In addition, operating margin was lower from 1) the opening of seven new stores (four in China, and one each in Malaysia, Indonesia, and Myanmar) in the financial year, 2) higher rental expense, and 3) rise in wages.

Same store sales growth (SSSG) saw negative contributions from China and Vietnam, but Malaysia saw a growth of 4.5% and Indonesia 5.6%.

Sales in China are expected to improve with the reopening this year of Parkson’s flagship stores in Shanghai and Beijing. And the company is continuing to expand with another five to six stores in China and 10 in South-East Asia.  Its Sri Lanka operations will also see expansions.

Meanwhile, the property and investment holding division registered RM33mil in revenues from the high occupancy rate at KL Festival City.

“We do like Parkson for its 1) strong balance sheet, with net cash of around RM1bil, 2) growth plans to expand Parkson Retail Asia’s contribution and its property and investment divisions which could see more value in the medium term, and 3) catalyst from most Asean governments encouraging consumption growth,” it says.

[Source]