Parkson still at ‘reduce’ rating

Reduce (maintained)
Target price: RM4.13
PARKSON Holdings Bhd's (PHB) 51.5%-owned unit Parkson Retail Group (PRG) registered a disapointing first quarter ended March 31, 2013 financial results.
Same-store-sales
(SSS) growth contracted by 2.8%, falling short of our and management's
expectations. While revenue grew by a marginal 0.4% year-on-year to
1.45bil yuan (RM710mil), core net profit plunged by 27.4% year-on-year
to 227mil yuan (RM111mil).
We attribute this to the
weaker-than-expected operating environment in China,
stiffer-than-expected competition which had also resulted in a 0.7%
point drop in merchandise margins to 17.3%; and higher operating cost
due to higher promotional activities in conjunction with the Chinese
New Year sales.
PRG's first quarter earnings before interest and
tax (EBIT) margin contracted by 7% year-on-year to 21%. Results were
within expectations, accounting for 25% of both our and street
financial year ending Dec 31, 2013 full year forecasts.
On a
sequential basis, earnings before interest, tax, depreciation, and
amortisation (EBITDA) margin improved 1% on the back of a 8% growth in
revenue. We deem this to be within expectation as the first quarter is
typically a stronger quarter.
Coupled with a lower effective tax rate, the first quarter of 2013's core net profit increased by 27% quarter-on-quarter.
While
China's economy is expected to pick up, management remains cautious on
PRG's SSS growth outlooks as they see a continued slowdown in consumer
spending for its products (bigger-ticket-items) and expect sales to
only slowly recover in second half of 2013.
We maintain our 3% SSS growth assumption for PRG in 2013, which is in line with management's guidance.
With
PRG accounting for more than 85% of PHB's EBIT, and an unexciting third
quarter of 2013 earnings growth (1.3% year-on-year) recorded by its
67.6%-owned Parkson Retail Asia (PRA), we believe PHB's third quarter
ending March 31, 2013 results, scheduled for May 27, 2013, will likely
grow by a marginal 2% to 4% quarter-on-quarter to RM75mil to RM77mil,
although nine-month net profit could decline by 25% to 30% year-on-year
to RM210mil to RM223mil.
We maintain our “reduce” rating for now with an unchanged revised net asset value (RNAV)-derived target price of RM4.13.
We gather that PHB will continue to roll-out its expansion plans in 2013 till 2015, albeit at a slower pace. DIALOG GROUP BHD
By AmResearch
Buy (maintained)
Fair Value: RM3.16
WE
maintain our “buy” call on Dialog, with an unchanged
sum-of-parts-derived fair value of RM3.16 per share, which implies an
financial year ending June 30, 2014 forecast (FY14F) price-to-earnings
(PE) of 25 times at parity to its three-year average but below its peak
of 40 times in 2007.
We have slightly tweaked Dialog's FY13F
earnings while maintaining FY14F to FY15F net profits even though its
first nine months for the financial year ending June 30, 2013 earnings
of RM141mil appears to be below expectations, accounting for 68% and
67% of our and street's FY13F estimates respectively. This is because
the group continued to suffer a RM8mil loss in Singapore, largely due
to an on-going live plant maintenance job, which was completed last
month.
Our channel checks indicate that Dialog has fully
provided for the losses in third quarter of the financial year ending
June 30, 2013 for this project, which underwent tough working
conditions amid high down time. With the completion of the Singapore
project, we understand that the group hopes to claim some variation
orders from the client. Hence, we expect Dialog's fourth quarter 2013
earnings to stage a rebound to possibly meet current expectations.
Year-on-year
(y-o-y), the group's nine-month 2013 revenue rose 37% to RM1.6bil but
net profit grew at a slower rate at 11% due to a 2% earnings before
interest, taxes, depreciation and amortisation contraction to 11%. This
stemmed largely from the losses arising from the Singapore job as well
as lower construction margin from the Pengerang engineering,
procurement and construction contract.
Additionally, the group's
nine-month 2013 associate contributions slid 12% y-o-y to RM36mil due
to start-up costs for its Pengerang Phase 1, Balai risk-sharing
contract and Bayan enhanced oil recovery projects. Likewise, Dialog's
third quarter 2013 revenue rose 27% quarter-on-quarter to RM637mil due
to recognition of construction activities at the group's tank terminal
project in Pengerang, but pre-tax profit fell 6% to RM53mil.
Dialog
is now undertaking the fabrication of 1.3 million cu metres of tank
terminal capacity with first oil commissioning in 2014.
While
the subsequent Phase 2 is yet to be launched, we understand the land
for this phase has already been fully reclaimed and pending the
finalisation of capacity take-up by Petronas, which is expected to make
the final investment decision by next month for the refinery and
petrochemical integrated development project.
On a separate
note, the group's pre-development stage is going well for its Balai
marginal cluster field project with joint venture partners RocOil and
Petronas Carigali. Currently, the first four appraisal wells have
yielded positive results and the consortium is drilling the fifth well.
The group's 50:50 joint venture with Halliburton
Energy Services has also commenced operations to redevelop the matured
Bayan oilfield off Sarawak, which could significantly contribute to
Dialog's prospective earnings momentum.
The stock still trades at an attractive FY14F PE of 22 times, below its 2007 peak of 40 times.
APM AUTOMOTIVE HOLDNIGS BHD
By RHB Research
Neutral (maintained)
Target Price: RM5.35
APM's first quarter ended March 31, 2013 results were in line with consensus estimates but ahead of our forecasts.
APM
achieved improved operating margins during the quarter helped by a
weaker Japanese yen although it is likely to be clawed back by original
equipment manufacturer (OEM) customers.
No dividend was declared
during the quarter. We raise our 2013-14 forecasts by 10.1% and 11%
respectively, raising our fair value to RM5.35 from RM4.85, maintaining
our “neutral” call.
APM's revenue for the quarter was relatively
tepid, growing just 3% year-on-year (y-o-y) despite industry production
rising 12.2% y-o-y. This is likely due to price reductions demanded by
OEM customers. Earnings before interest and taxes (EBIT) margin
contracted to 12.8%, from 14.4% in first quarter 2012 but was better
than the 9.7% achieved in fourth quarter 2012 that were adversely
affected by inventory provisions relating to the depreciation of the
Japanese yen.
Across its product segments, revenue was flat
y-o-y at its suspension and electrical product line due to lower demand
and the weak euro. Sales of interior and plastic products rose 10.2%
y-o-y. Revenue from operations outside Malaysia declined 11.4% y-o-y
due to the divestment of its Australian radiator business.
We
believe sustained growth prospects for domestic auto parts players will
be capped by limited automotive sales volume potential.
The
Malaysian Automotive Association (MAA) is only forecasting a 2% total
industry volume (TIV) growth this year. Management also warned of
higher parts and raw material costs.