KENANGA: Parkson - BUY - 25 Mar 2008

Parkson Holdings – Further growth from new stores & Setapak mall (Company Update)



Price: RM5.40

Target Price: RM7.00

Recommendation: BUY



· Development of new mall in Setapak. Spring Active Sdn Bhd, a wholly-owned subsidiary of Parkson Holdings (PH), has entered into an agreement with Premier Equity Holdings Ltd, a wholly-owned subsidiary of Fitters Diversified Bhd, to develop a 3-storey shopping centre in Setapak. The total cost of the project is RM214m and is due for completion in 2HCY09.

· Same store sales growth to remain robust in China and Vietnam but restrained in Malaysia. Management anticipates same store sales growth of 15-18% in China, 4-6% in Malaysia and 25-30% in Vietnam for FY08-09. This corresponds to the expected economic growth of the respective countries.

· 10-14 new stores planned for FY08. We understand that the firm intends to open 5-7 new stores in China, 2-3 in Malaysia and 3-4 in Vietnam in FY08. Potential acquisition of managed stores or third party stores in China to boost earnings.

· Revising FY08 net profit forecast upwards by 7%. We are raising the total number of new stores planned to 11 from 10 previously to account for an additional store in China. We are also increasing our estimated capital expenditure by RM113.5m, RM67m and RM34m in FY08, FY09 and FY10 respectively to account for the cost of the Setapak mall.

· Our sum-of-parts valuation utilising PERs of 30x, 10x and 20x applied to FY09 EPS of China, Malaysia and Vietnam gives us a new target price of RM7.00. The lower target price reflects the decrease in the industry’s average FY09 PER in China. We continue to like the stock for its unique access to the rapidly growing retail markets of China and Vietnam.