February 21, 2011

PARKSON - Parkson proxy to regional growth

Stock Name: PARKSON
Company Name: PARKSON HOLDINGS BHD
Research House: HWANGDBS

Parkson Holdings Bhd
(Feb 21, RM5.56)
Maintain buy at RM5.56 with revised target price RM6.90 (from RM6.60)
: We raised Parkson Holding Bhd's (PHB) target price (TP) to RM6.90 (from RM6.60) after imputing DBS Vickers' recent target price upgrade to HK$15.47 (from HK$14.71) for its Hong Kong-listed subsidiary, Parkson Retail Group (PRG). This implies 24% upside potential. We still like PHB for its attractive valuation (trading at 15.4 times CY11 PER against peers' 22 times) and strategic presence in the emerging markets of Malaysia, China, and Vietnam (and soon in Cambodia), as domestic consumption continues to rise in these growing economies.

Year-to-date same-store sales (SSS) growth is ahead of our full-year assumptions of 10% for China (75% of group revenue), 5% to 6% for Malaysia, and 20% for Vietnam. If the positive trend persists, we may upgrade our forecasts. A 1% increase in our SSS growth assumption would lift FY12F net profit by 1.4%.

Additional earnings kickers will be new store openings ' PHB has lined up seven stores (five in China, one each in Malaysia and Vietnam) in 2011, on top of two stores opened in January (Zigong-China and Paragon-HCMC). These could raise group retail space by 7.5% (from 1.6 million sq m now).

International investors seeking potential currency returns may see the advantage in investing in PHB (versus PRG), as DBS expects the ringgit to strengthen 13% against the Hong Kong dollar in CY11 and 5% in CY12.

Meanwhile, downside risk for PHB is also cushioned by a smaller foreign shareholding (24.8% at end-December) agaisnt PRG's circa 44% to 45%, in the event of a further reversal of foreign funds from Asia to developed markets. ' HwangDBS Vickers Research, Feb 21


This article appeared in The Edge Financial Daily, February 22, 2011.

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