Parkson - BUY - 29 May 2008

Parkson Holdings - 9MFY08 results within expectations (Results Note)



Price: RM6.40

Target Price: RM8.50

Recommendation: BUY



· Parkson Holdings' (PH) annualised 9MFY08 core net profit of RM220.5m is in line with our forecast of RM223.2m, coming in slightly below by 1%, but is 17.7% lower than consensus estimate of RM268.0m. PH benefited from strong performance in all 3 markets, and , as well as an extraordinary gain of RM231.6m arose from the placement Parkson Retail Group (PRG) shares.

· Exceptional gain from PRG share placement, robust same store sales growth and contribution of new stores caused 9MFY08 pretax profit to double YoY, growing by 104%. PH's placement of 8m PRG shares (at HK$78.66 per share) in January 2008 resulted in a one-off gain of RM231.6m. 9MFY08 core net profit rose by 31% to RM165.4m due to strong same store sales growth (of 17%, 5% and 30% in China, Malaysia and Vietnam) and contribution from 6 new stores (3, 2, and 1 in China, Malaysia and Vietnam respectively).

· QoQ, 3QFY08 pretax profit skyrocketed by 160% fuelled by the Chinese New Year festivities and extraordinary placement gain. The 1.5% dilution of PH's interest in PRG (to 53.5%) caused the exceptional gain. QoQ, recurring net profit in 3QFY08 increased by 5% in line with the 4% growth in revenue, from higher China sales in conjunction with the festival season offsetting lower sales in Malaysia due to apparent slowdown in private consumption from inflationary pressures.

· Maintain FY08 and FY09 earnings estimates. Anticipate net profit growth forecast of 65% to be met given sustained retail spending in PH's key markets and potential one-off gain in 4QFY08 of at least RM4.6m (of RM110m total consideration) from the sale of Jet East Investments Ltd to PRG.

· Re-iterate BUY recommendation with target price of RM8.50, derived from our sum-of-parts valuation (applies 30x, 10x and 20x FY09 PERs to Parkson China, Malaysia and Vietnam). Parkson's access to the rapid growth markets of China and Vietnam is expected to counter sluggish consumer spending in Malaysia. Potential risks are slowdown in private consumption in China due to concerns on inflation and negative sentiment related to the Sichuan earthquake.







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