HLG: 23 May 2008 Parkson Holdings

HLG: 23 May 2008 Parkson Holdings - Selling two China stores to PRG

Parkson Holdings Bhd HOLD



Price target RM7.10



Share price at 22 May RM6.60



Investment summary


Parkson Holdings (PHB) yesterday proposed to sell 2 of its 7 directly-owned China stores to HK-listed subsidiary PRG for RM110m. We think the deal is neutral to PHB, reaffirming our HOLD rating on the stock. We continue to think PHB is an imperfect proxy to PRG’s share price, with few arbitrage opportunities for alpha investors at current levels. Though we expect a modest slowdown in H208 on spillover from a US recession, we remain positive on China’s longer-term macro-economic prospects. China retail sales have been growing at a 15-20% clip for the last 2 years, and a moderation to 5-10% would still be a comfortable growth level for the retail sector.



Index + China = interesting

Share price implies a 10% discount to PRG, which we think is fair. For index investors, we would be buyers at current levels, ahead of a potential recovery in Greater China equity markets. PHB is the only index stock with China growth levels