Parkson - The Retail Model

We initiate coverage on Parkson (PHB) with an Outperform recommendation and TP of RM5.73 based on sum-of-parts valuation with FY13F earnings and forward PE multiple for the respective segments. We expect the group‟s growth outlook to be bullish at 10% CAGR (FY13F) amidst negative global sentiments. Parkson's samestore- sales growth (SSSG) we assume will be flattish going forward, however the group‟s growth prospects underpinned by its strategic expansion plans and resilient asset-light, concessionaire-based business model should concede positive results to support our 23% upside recommendation.

 

• Portfolio growth. Following the success of Festival Walk, Parkson's first retail mall development in Kuala Lumpur, the group is looking to emulate the same business concept for their new development in Malacca to expand Parkson's retail development portfolio. Their recent acquisition of fashion brand and retailer Odel in Sri Lanka and department store JV with property developer Yoma Strategic Holdings in Myanmar is also the next phase of growth whereby the Indochina footprint is paved together with the Sub-Indian continents.
• Conservative but certain. In-line with management‟s SSSG targets y-o-y. We expect the management to continue to execute their expertise in weaker markets to maintain and grow SSSG from mid to high single digit.
• Trading at a bargain. Against its regional listed subsidiaries and regional peers, PHB's PE trading at 15x is regarded as a discount to its regional peer average of 19x. Dividend yields additionally stands at 5.7% with our FY13F estimates for this regionally diversified business reiterating our Outperform recommendation of TP: RM5.73.