Parkson Holdings Bhd
(May 7, RM2.95)
Maintain sell with target price of RM2.20: We reaffirm our “sell” recommendation on Parkson with an unchanged sum-of-parts based fair value of RM2.20 per share.
Local dailies reported that Parkson plans to build stand-alone shopping malls and lease out the net lettable area to improve margins given the increase in rental for its existing leases.
This move is seen as an alternative source of revenue for Parkson to push up its gross margins given the operating pressure faced on multiple fronts. It is said that the group’s costs would be 30% lower if it were to build its own malls.
This news did not come as a surprise as Parkson has already embarked on this route and had expressed its intention to increase mall ownership going forward.
At present, Parkson owns and manages the KL Festival City mall in Setapak, Kuala Lumpur. It also owns seven malls in China and one in Vietnam. It is set to build another shopping mall in China, which is scheduled to open in the first half of calendar year 2015 (CY15). It is also set to open a mall each in Cambodia and Melaka in CY17.
We understand that the estimated cost involved in building the three malls is RM2.4 billion – China (RM952 million), Cambodia (RM554 million) and Melaka (RM900 million). The malls will be funded by internally-generated cash.
As at first half ended Dec 31 of financial year 2014, Parkson was sitting on a cash pile of RM3.4 billion, with a net gearing of 0.4 times.
Local dailies had also highlighted that Parkson plans to establish six stores in Johor Baru over the next three to four years. To date, Parkson has a total of 118 stores under its portfolio. It intends to introduce 30 new brands in its China and Malaysia operations by year-end, and to have 100 new brands in China and Malaysia by 2016.
Our earnings per share estimates are maintained for now pending the release of Parkson Retail Asia’s results on May 8, Parkson Retail Group on May 15 and Parkson on May 22.
We believe that China’s earnings remain vulnerable and challenging given its shrinking market share against e-commerce players and new retail malls. — AmResearch, May7
This article first appeared in The Edge Financial Daily, on May 8, 2014.
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