Parkson Holdings - BUY - 28 Aug 2008

Parkson Holdings - FY08 results in-line with estimates (Results Note)



Price: RM4.42

Target Price: RM8.50

Recommendation: BUY



· Parkson Holdings (PH) FY08 core net profit of RM215.9m was within our expectations at 3% higher than our estimated RM223.2m but 6% below market consensus of RM229.7m. Strong earnings growth in all geographical segments, particularly China (that accounted for 68% of PH's revenue) had helped to underpin the good set of numbers.

· The injection of new stores and China's double-digit same-store sales growth propelled the 57% rise in FY08 core net profit YoY. Revenue in FY08 rose by 25% driven mainly by 29% revenue growth in China, although all countries registered sales improvement with same-stores sales growth coming close to our assumptions of 15%, 3% and 25% for China, Malaysia and Vietnam respectively. Stripping out the extraordinary gain of RM231.6m from the placement of 1.44% equity interest of Parkson Retail Group (PRG), FY08 pretax profit rose by an encouraging 35%, enhanced by improved operating efficiency and larger contribution from associates.

· YoY, 4QFY08 net profit was 5x higher although this is not an entirely fair comparison given that in 4QFY07 PH was still beleaguered by losses of Bright Steel Sdn Bhd that was disposed of in September 2007.

· QoQ, the absence of festive season catalysts resulted in a weaker 4QFY08. Revenue declined by 19% QoQ in-line with seasonality bearing in mind that 3QFY08 sales were boosted by the Chinese New Year demand. Pretax profit (excluding the exceptional gain from PRG share placement in 3QFY08) lessened by 21% in-line with lower sales revenue.

· Final tax-exempt dividend per share of 5.0 sen declared resulting in a total FY08 GDPS of 10.0 sen. This translates to a dividend payout of 42% and dividend yield of 2.3%.

· FY09 and FY10 net profit forecast unchanged for now pending guidance from analyst briefing today. Expect downward revision of FY09 forecast following briefing on expectations of softer sales with economic slowdown.

· Maintain BUY recommendation but target price of RM8.50 based on sum-of-parts valuation utilising FY09 PERs of 30x, 10x and 20x for Parkson China, Malaysia and Vietnam is under review. The stock is currently trading at 15.2x and 12.4x FY09 and FY10 PERs. More details post briefing.