AmResearch maintains "Hold" on Parkson Holdings

by **hlk** Tue 28 May 2013, 13:11

Nadya Ngui

PETALING JAYA: AmResearch reaffirmed its “Hold” recommendation on Parkson Holdings Bhd (PHB) due to its muted earnings, with an unchanged fair value of RM4.43.
“We
maintain our “Hold” rating given the lack of near-term catalysts to
re-rate the stock and PHB's muted earnings growth and vulnerability to
adverse change from a macro perspective, particularly for China's
deceleration in same store sales growth (SSSG),” it said.
AmResearch
said the department store's nine months result of RM210 million was
within its forecasts following the expected continued weakness in
consumer spending, particularly in China, which commands 76% of the
group's earnings before interest and tax, followed by Malaysia with 20%.
“Softer economy growth experienced in China and Vietnam consequently
lead to SSSG contraction of 2% and 1%, respectively. Having said that,
Malaysia and Indonesia are sustaining positively with 6% and 5% SSSG
respectively. “We believe Chinese New Year spending had somewhat
supported nine months SSSG, but were offset by higher discounting
activities. Nonetheless, a seasonal lower performance is expected in 4Q
in absence of major festivities,” it said, adding that intensifying
competition for brands and tenants in China are partly the major reasons
for its decline.
The research house said despite a shy 3%
on-year revenue increase, overall merchandise gross margin compressed to
19.1% from 19.4% in its nine months 2012. This weighed down its
earnings before interest and tax significantly by 26% on-year which were
also impacted by slow sales and new stores opening. “Going forward, we
expect Parkson's retail group (PRG) SSSG to contract 2% for the full
year of 2013, with a moderate recovery, at best in 2014 of 1%. That
said, we think much of these negatives arising from PRG in particular
slower SSSG expectation and slowing network of expansion considerations
have been reflected in PHB's share price. PHB's share price hit a
four-year historical low yesterday,” it said.