PP 7767/09/2010(025354)

RHB Research
Corporate Highlights

Malaysia
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

B r ie f ing N ot e
26 August 2010
MARKET DATELINE

Parkson Holdings Share Price

Fair Value
:
:
RM5.48
RM7.72
Improving Prospects For FY06/11 Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (Parkson; Code: 5657) Bloomberg: PKS MK

Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/NTA P/CF ROE Gearing GDY
June (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (x) (%)
2010a 2725.5 532.9 27.9 9.9 19.7 29.0 3.5 17.2 15.4 net cash 2.1
2011f 3671.8 386.7 37.3 33.7 14.7 37.0 4.5 8.7 16.9 net cash 1.5
2012f 4507.0 496.9 47.9 28.5 11.5 44.0 5.7 6.1 18.5 net cash 1.6
2013f 5454.1 627.7 60.6 26.3 9.1 - 6.5 19.9 19.5 net cash 1.8
Main Market Listing /Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ Dividend declared. Parkson proposed a final cash dividend of 6 sen per

share (tax-exempt) and a distribution of 1 treasury share for every 100 Issued Capital (m shares) 1036.4
shares held in the company. This translates to an estimated 11.5 sen Market Cap (RMm) 5679.5
dividend per share, based on the assumption of PHB’s share price of Daily Trading Vol (m shs) 3.7
RM5.49, implying a payout ratio of ~40% and a yield of 2.1%. The 52wk Price Range (RM) 4.91-6.20
combined total dividend payout exceeded our expectation of a 7 sen cash Major Shareholders: (%)
dividend only. Cheng family 35.0
Lion Industries 20.0
♦ Moving forward. Parkson will continue to focus on growing its market
share via increasing its operating area by 15% p.a. and maintaining its
SSS growth of 10%, 5-6% and 15-20% for China, Malaysia and Vietnam FYE June FY10 FY11 FY12
respectively. We understand that it plans to open 5-6 stores p.a. in FY11- EPS chg (%) - - -
13 to achieve its target of 15% p.a. area growth. Subsequently, Var to C.EPS (%) 0.7 (1.9) 4.5
management indicated that it will further increase the number of stores to
6-7 p.a. as the base area becomes bigger to maintain its 15% p.a. area PE Band Chart
growth.

♦ 1st mall concept opening in Malaysia. Parkson will be opening the KL PER = 21x
PER = 17x
Festival City mall in mid to end 1QCY11. It will be the first mall concept PER = 13x
opened by Parkson in Malaysia, where the Parkson store will occupy 25%
of the net lettable area while the rest are leased to other retailers. We
understand that the take-up rate of the leases has been encouraging and
is on track to meet its 90% area leased by opening time, while the rental
rates have also surpassed original expectations. Management is very
optimistic on the prospects of the mall and expects a gross yield of 10% of
its RM200m investment in the mall in the first year of operations and a
Relative Performance To FBM KLCI
substantial increase of 40-50% for the 2nd and 3rd years. We have included
a rental income of RM18m for FY12 and RM25m for FY13.
Parkson Holdings
♦ On the lookout in Indonesia. Management informed us that they are
currently on the lookout for potential tie-ups to tap into the growing
Indonesia market. It stressed that it will not go in the country fresh and FBM KLCI

will only go in when they find a suitable partner that they can work with in
Indonesia.

♦ Forecasts. Our forecast is tweaked upwards slightly by less than 1% for

FY12-13 after incorporating the expected rental yield from its mall
opening.

♦ Risks. Sharper-than-expected contraction in consumer spending in China,

Malaysia and Vietnam.

♦ Investment case. Parkson not only provides investors with a cheaper

alternative entry into China’s retail market, it also provides steady
earnings growth via a combination of a solid business model and Hoe Lee Leng
(603) 92802641
continuous improvement in its operations. We are maintaining our
hoe.lee.leng@rhb.com.my
Outperform call on the stock with an unchanged SOP derived fair value
(Table 2) of RM7.72.

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 26 August 2010

Table 2: SOP valuation

Valuation method RNAV (RMm) RNAV (RMm)
Share of PRG market value (51.6% stake) Indicative FV of HK$14.69, based on PER of 22x 8,930.5
CY11 EPS
20% holding company discount to PRG 7,144.4
Parkson Vietnam 11.5x CY11 EPS 153.1
Parkson Malaysia 14.0x CY11 EPS 405.5
6 excluded stores in China 10x CY11 EPS 306.8
Net cash / (debt) ex-PRG (which excl. cash to purchase 438.1
Suntrans Building) as at Dec-09
Total 8,447.9
Fully diluted number of shares 1,093.6
Target price (RM) 7.72

Table 3. Earnings Forecasts Table 4. Forecast Assumptions

FYE June (RMm) FY10a FY11F FY12F FY13F FYE June FY10F FY11F FY12F

Turnover 2725.5 3671.8 4507.0 5454.1 China (Dec)

Turnover growth (%) 5.5 34.7 22.7 21.0 - New stores 5 5 5
- Same store sales growth 11.0% 11.0% 11.0%
EBITDA 911.1 1164.1 1429.2 1731.6
EBITDA margin (%) 33.4 31.7 31.7 31.7 Vietnam
- New stores 2 2 3
Depr&Amor (151.9) (165.0) (167.7) (162.5) - Same store sales growth 20.0% 20.0% 20.0%
Net Interest (57.1) (26.6) (11.9) 9.7
Associates 0.2 0.3 0.3 0.3 Malaysia
- New stores 2 1 1
Pretax Profit 702.4 972.8 1250.0 1579.1 - Same store sales growth 5.0% 5.0% 5.0%
Tax (169.5) (243.2) (312.5) (394.8)
Minorities (248.5) (342.9) (440.6) (556.6)
Net Profit 532.9 386.7 496.9 627.7
Source: Company data, RHBRI estimates

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IMPORTANT DISCLOSURES

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Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
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Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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