RHB - 17 March 2008 (Parkson)

Top Story : Parkson – Bored with Malaysian Shopping? Go to China and Vietnam! Outperform

Visit Note
- Three key takeways from our recent company visit: 1) According to management, same store sales (SSS) is expected to grow at 15-18% in China, 6% in Malaysia and 25-30% in Vietnam in 2008; 2) Average 10-13 new stores per year to be opened in FY08-10. Over the next three years, Parkson plans to open an average: 5-7 new stores per year in China, 2-3 in Malaysia and 4 in Vietnam; 3) Margins are also projected to be on a rising trend, given Parkson's high operating leverage.

- All in, after we have imputed: 1) a reduction of SSS growth for FY08-10 for China; 2) an increase in SSS growth projections for FY08-10 for Vietnam; and 3) an increase in our new store assumptions for China and Malaysia, our FY08 earnings projection has been reduced by 2%, while our FY09-10 earnings projections have been raised by 3-4% p.a..

- Although we remain bullish on the Chinese and Vietnamese economies, we believe the US sub-prime mortgage crisis could lead to a significant reduction in export income of these countries, thus hampering consumer spending power.

- Given this risk, we now attach a lower 2–year PEG of 1.2x (from 1.5x previously) to value PRG's (China) revised FY08 earnings. We also reduce our target PE multiples for the Malaysian and Vietnamese operations to 12x (from 14x) and 18x (from 20x) CY08 earnings, respectively. Indicative fair value is therefore reduced to RM9.30 from RM11.70 after applying an unchanged 20% holding company discount to the company's revised RNAV of RM11.65. Maintain Outperform.