Stock Name: PARKSON
Company Name: PARKSON HOLDINGS BHD
Parkson Holdings Bhd
(Oct 10, RM5.45)
Maintain buy with reduced fair value of RM6.68 from RM7.58: The Edge weekly reported that Parkson Asia's (PA) shares may be offered to Parkson Holdings (PHB) shareholders at about a 30% discount to the proposed IPO price.
A PHB circular to shareholders said PA may be priced at a minimum 17.4 times price-earnings ratio (PER) against FY11 net profit of S$35 million (RM85.2 million) with the new share issue making up 18.9% of its enlarged share capital and generating proceeds of no less than S$115 million. PHB will sell up to 13.1% of PA's enlarged share capital and raise no less than S$56 million.
As we highlighted in our previous report, we think the listing of PA would be positive for PHB given that it could increase PA's valuation as the company grows bigger. Based on the latest market cap of Parkson Retail Group (PRG) and PHB, the market is currently valuing PA at only a 6.7 times forward PER (based on our FY12 forecast for its net profit).
Assuming that PRG's current market cap does not reflect a 20% holding discount and incorporating a 20% discount to PRG's market cap, PA has an implied PER of 17.5 times, which is more or less in line with its potential minimum listing trailing valuation of 17.4 times PER.
There is no direct listed peer comparison for PA in Singapore. While the consumer companies listed on SGX are trading at a relatively low PER of 5.3 to 13.4 times, we think that PA ' which could be the largest consumer retail company listed in SGX and it has a solid track record ' would allow the group to list at a stronger valuation.
Furthermore, PA provides investors with regional retail exposure in Vietnam, Indonesia, Malaysia and soon, Cambodia.
Note that the potential 17.4 times listing trailing PER only incorporates one month's earnings from its Indonesia operation, and the minimum target listing PER would have been lower at 15.1 times had the full-year earnings of its Indonesia business been included.
Assuming PA is listing at a 17.4 times minimum trailing PER, shareholders would be able to subscribe for PA at 12.1 times PER, which we think is attractive considering its growth potential and given that the discounted offer is lower than PA's current implied PER of 17.5 times.
While PHB's fundamentals remain unchanged, we reduce our fair value (FV) from RM7.58 to RM6.68 as we have updated our net cash balance and reduced our target PER for its China operation from 24 times to 22 times PER given the weakening share market.
Factoring in a 20% holding discount and a 62.7% diluted stake (90.1% stake currently) in PA (assuming 18.9% new shares to be issued and 13.1% of offer for sale), our post PA listing FV for PHB will be reduced to RM6.14, which still offers approximately 13% upside against its last closing price.
The potential upside risk to our post listing FV is if PA manages to list at more than a 10% higher PER. Hence, we maintain our 'buy' recommendation on PHB. ' OSK Research, Oct 10
This article appeared in The Edge Financial Daily, Ocotber 11, 2011.
Company Name: PARKSON HOLDINGS BHD
| Research House: OSK | Price Call: BUY | Target Price: 6.68 |
Parkson Holdings Bhd
(Oct 10, RM5.45)
Maintain buy with reduced fair value of RM6.68 from RM7.58: The Edge weekly reported that Parkson Asia's (PA) shares may be offered to Parkson Holdings (PHB) shareholders at about a 30% discount to the proposed IPO price.
A PHB circular to shareholders said PA may be priced at a minimum 17.4 times price-earnings ratio (PER) against FY11 net profit of S$35 million (RM85.2 million) with the new share issue making up 18.9% of its enlarged share capital and generating proceeds of no less than S$115 million. PHB will sell up to 13.1% of PA's enlarged share capital and raise no less than S$56 million.
As we highlighted in our previous report, we think the listing of PA would be positive for PHB given that it could increase PA's valuation as the company grows bigger. Based on the latest market cap of Parkson Retail Group (PRG) and PHB, the market is currently valuing PA at only a 6.7 times forward PER (based on our FY12 forecast for its net profit).
Assuming that PRG's current market cap does not reflect a 20% holding discount and incorporating a 20% discount to PRG's market cap, PA has an implied PER of 17.5 times, which is more or less in line with its potential minimum listing trailing valuation of 17.4 times PER.
There is no direct listed peer comparison for PA in Singapore. While the consumer companies listed on SGX are trading at a relatively low PER of 5.3 to 13.4 times, we think that PA ' which could be the largest consumer retail company listed in SGX and it has a solid track record ' would allow the group to list at a stronger valuation.
Furthermore, PA provides investors with regional retail exposure in Vietnam, Indonesia, Malaysia and soon, Cambodia.
Note that the potential 17.4 times listing trailing PER only incorporates one month's earnings from its Indonesia operation, and the minimum target listing PER would have been lower at 15.1 times had the full-year earnings of its Indonesia business been included.
Assuming PA is listing at a 17.4 times minimum trailing PER, shareholders would be able to subscribe for PA at 12.1 times PER, which we think is attractive considering its growth potential and given that the discounted offer is lower than PA's current implied PER of 17.5 times.
While PHB's fundamentals remain unchanged, we reduce our fair value (FV) from RM7.58 to RM6.68 as we have updated our net cash balance and reduced our target PER for its China operation from 24 times to 22 times PER given the weakening share market.
Factoring in a 20% holding discount and a 62.7% diluted stake (90.1% stake currently) in PA (assuming 18.9% new shares to be issued and 13.1% of offer for sale), our post PA listing FV for PHB will be reduced to RM6.14, which still offers approximately 13% upside against its last closing price.
The potential upside risk to our post listing FV is if PA manages to list at more than a 10% higher PER. Hence, we maintain our 'buy' recommendation on PHB. ' OSK Research, Oct 10
This article appeared in The Edge Financial Daily, Ocotber 11, 2011.
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