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Parkson Holdings
Whopping 1HCY10 SSS growth for Malaysia. We understand that 1H CY10 Same Store Sales (SSS) growth for Malaysia was at a phenomenal 17%, while the momentum is expected to carry on to the 2H CY10.
Together with 1HFY10 SSS growth of 7%, this will bring full year FY06/10 SSS growth to approximately 11-12%, which is a lot higher than management’s guidance and our forecast of 4-5% and 4% respectively.
We are thus adjusting our SSS growth assumption for Malaysia in FY06/10 to 10% (to be on the conservative side), from 4% previously, while we are leaving SSS growth assumptions for FY11-12 unchanged at 5% p.a. With regards to new store openings, Parkson opened 3 stores in FY06/10, whichis above our previous assumption of 2 stores.
? Vietnam SSS growth was above expectations too. For the 1H CY10, Vietnam chalked up a respectable SSS growth of 27%, which is slightly above management’s earlier guidance of 20-25% but significantly above our expectations of 15% for FY10.
The reason for the stronger-than-expected SSS growth for Vietnam is the lack of competition, with virtually no other stores targeting Parkson’s middle to upper middle income retail segment.
? The major growth driver, China, is in line with expectations. Despite both Malaysia and Vietnam chalking up above expectations 1H CY10 SSS growth, our original expectations on the overall group bottomline is still mostly intact as China’s contribution, which comprises 72% and 95% to revenues and PBT respectively, are in line with our expectations.
For 1QCY10, China recorded a SSS growth of 10.8%, while management expects the same level of growth for the 2Q CY10, which is in line with our SSS assumptions of 10%. For 1H CY10, China recorded an SSS growth of 10- 11%, while the beginning of 2H CY10 continues to see double-digit SSS growth. Assuming this growth is maintained for the rest of the CY, this would be in line with our SSS assumptions of 10% for FY12/10
? FY10-12 earnings increased by 0.9-4.2%, after accounting for the changes in assumptions for Malaysia’s SSS growth, Vietnam’s SSS growth and new store assumptions, and China’s new store assumption.
? Reiterate Outperform. After the earnings upgrade, our SOP derived fair value for Parkson is thus increased to RM7.72 (from RM7.45 previously). We like Parkson as it provides a cheaper alternative to the robust China retail industry, at less demanding valuations than its HK listed subsidiary, Parkson Retail Group. We also favour the company due to its stable
expansion strategy, along with its strong cashflow and asset light business model. We thus reiterate our Outperform call on the stock.
Company Visit Highlights
? Whopping 1HCY10 SSS growth for Malaysia. We understand that 1H CY10 Same Store Sales (SSS) growth for Malaysia was at a phenomenal 17%, while the momentum is expected to carry on to the 2H CY10. Together with 1HFY10 SSS growth of 7%, this will bring full year FY06/10 SSS growth to approximately 11-12%, which is a lot higher than management’s guidance and our forecast of 4-5% and 4% respectively.
The higher-than-expected SSS growth was mainly due to a rise in customer traffic in Parkson stores, as we understand that the average item price and transaction values were more or less unchanged during the year, at RM50 and RM110 respectively; and a growth in market share in the middle to upper middle income retail segment at the expense of its competitors, namely Isetan, Metrojaya, Tangs, etc.
We are thus adjusting our SSS growth assumption for Malaysia in FY06/10 to 10% (to be on the conservative side), from 4% previously, while we are leaving SSS growth assumptions for FY11-12 unchanged at 5% p.a. Management continues to guide for a 5-6% SSS growth in FY11-12, as it believes the strong growth in FY10 will most likely not be repeated due to the low base effect in FY09. Although the strong growth numbers are encouraging, we note that Malaysia only contributes 25% and 3.8% to PHB’s total revenues and PBT respectively.
With regards to new store openings, Parkson opened 3 stores in FY06/10, which is above our previous assumptions of 2 stores. We understand that management plans to open 2 stores in FY06/11, and one store in FY06/12, in line with our forecasts. We are thus increasing our FY06/10 new stores opening
assumption for Malaysia to 3.
? Vietnam SSS growth was above expectations too. For the 1H CY10, Vietnam chalked up a respectable SSS growth of 27%, which is slightly above management’s earlier guidance of 20-25% but significantly above our expectations of 15% for FY10.
The reason for the stronger-than-expected SSS growth for Vietnam is the lack of competition, with virtually no other stores targeting Parkson’s middle to upper middle income retail segment. Parkson plans to open one store in 4Q CY10, in Ho Chin Minh City, which is below our forecast and management’s previous guidance of 2 stores for FY10.
We understand that the process of opening new stores in Vietnam has been challenging due to the difficulty in obtaining government permits, thus holding up development programme. Despite this, management continues to hold on to its target of opening 3 stores per year in Vietnam in FY11-12 for now.
Nevertheless, while we are upping our SSS growth assumptions for Vietnam to 20% (from 15-18%) for FY10-12, we are reducing our new store assumption to one store (from 2 stores) in FY10 and 2 stores (from 3 stores) in FY11-12.
? The major growth driver, China, is in line with expectations. Despite both Malaysia and Vietnam chalking up above expectations 1H CY10 SSS growth, our original expectation on the overall groupbottomline is still mostly intact as China’s contribution, which comprises 72% and 95% to revenues and PBT respectively, are in line with our expectations.
For 1H CY10, China recorded a SSS growth of 10-11%, while the beginning of 2H CY10 continues to see double-digit SSS growth.
Assuming this growth is maintained for the rest of the CY, this would be in line with our SSS assumptions of 10% for FY12/10. Store openings in China have also been on track, with the latest store opening at Shaoxing in May, and another store in Beijing due to open in end-August 2010.
Management expects another three stores to be opened in 4Q CY10, bringing total number of new stores in CY10 to 5, which is above our expectation of 4 new stores. For CY11- 12, management expects to open another 5 new stores p.a., which is above our assumption of 4 new stores in CY11, but in line with our assumption of 5 new stores in CY12.
We are thus changing our new store assumption to 5 for CY10-12. We are maintaining our SSS growth assumptions at 10% for CY10 and 11% for CY11-12 respectively, although we note our CY11-12 projections are slightly below management’s targets of 12-15% p.a..
? Injection of PRG managed stores. PRG is likely to inject 2 stores by the end of this year, namely Shantou and Qingdao, and as previously mentioned, the price will likely be within its historical acquisition PE of 13-17 times.
In terms of financing the acquisitions and new store openings, we note that although Parkson has the capacity to further leverage its current 0.5x net gearing, it would not need to obtain any additional financing in the medium term, barring any major acquisitions, given its annual operating cashflow of RM800-900m.
Parkson has recently refinanced its US$125m bonds that were due in May 2010, with a lower effective interest rate of less than 5% (previously more than 6%). Management is looking for its bonds to be upgraded to investment grade to secure more favourable interest rates when it is time to refinance its US$200m bonds which are due in Nov 2011.
Forecast
? FY10-12 earnings increased by 0.9-4.2%, after accounting for the changes in assumption for Malaysia’s SSS growth and new store assumptions, Vietnam’s SSS growth and new store assumptions, and China’s new store assumption.
Risks
? Risks to our view. The risks include sharper-than-expected contraction in consumer spending in China, Malaysia and Vietnam. Valuations And Recommendation
? Reiterate Outperform. After the earnings upgrade, our SOP derived fair value for Parkson is thus increased to RM7.72 (from RM7.45 previously).
We like Parkson as it provides a cheaper alternative to the robust China retail industry, at less demanding valuations than its HK listed subsidiary, Parkson Retail Group.
We also favour the company due to its stable expansion strategy, along with its strong cashflow and asset light business model. We thus reiterate our Outperform call on the stock.
Whopping 1HCY10 SSS growth for Malaysia. We understand that 1H CY10 Same Store Sales (SSS) growth for Malaysia was at a phenomenal 17%, while the momentum is expected to carry on to the 2H CY10.
Together with 1HFY10 SSS growth of 7%, this will bring full year FY06/10 SSS growth to approximately 11-12%, which is a lot higher than management’s guidance and our forecast of 4-5% and 4% respectively.
We are thus adjusting our SSS growth assumption for Malaysia in FY06/10 to 10% (to be on the conservative side), from 4% previously, while we are leaving SSS growth assumptions for FY11-12 unchanged at 5% p.a. With regards to new store openings, Parkson opened 3 stores in FY06/10, whichis above our previous assumption of 2 stores.
? Vietnam SSS growth was above expectations too. For the 1H CY10, Vietnam chalked up a respectable SSS growth of 27%, which is slightly above management’s earlier guidance of 20-25% but significantly above our expectations of 15% for FY10.
The reason for the stronger-than-expected SSS growth for Vietnam is the lack of competition, with virtually no other stores targeting Parkson’s middle to upper middle income retail segment.
? The major growth driver, China, is in line with expectations. Despite both Malaysia and Vietnam chalking up above expectations 1H CY10 SSS growth, our original expectations on the overall group bottomline is still mostly intact as China’s contribution, which comprises 72% and 95% to revenues and PBT respectively, are in line with our expectations.
For 1QCY10, China recorded a SSS growth of 10.8%, while management expects the same level of growth for the 2Q CY10, which is in line with our SSS assumptions of 10%. For 1H CY10, China recorded an SSS growth of 10- 11%, while the beginning of 2H CY10 continues to see double-digit SSS growth. Assuming this growth is maintained for the rest of the CY, this would be in line with our SSS assumptions of 10% for FY12/10
? FY10-12 earnings increased by 0.9-4.2%, after accounting for the changes in assumptions for Malaysia’s SSS growth, Vietnam’s SSS growth and new store assumptions, and China’s new store assumption.
? Reiterate Outperform. After the earnings upgrade, our SOP derived fair value for Parkson is thus increased to RM7.72 (from RM7.45 previously). We like Parkson as it provides a cheaper alternative to the robust China retail industry, at less demanding valuations than its HK listed subsidiary, Parkson Retail Group. We also favour the company due to its stable
expansion strategy, along with its strong cashflow and asset light business model. We thus reiterate our Outperform call on the stock.
Company Visit Highlights
? Whopping 1HCY10 SSS growth for Malaysia. We understand that 1H CY10 Same Store Sales (SSS) growth for Malaysia was at a phenomenal 17%, while the momentum is expected to carry on to the 2H CY10. Together with 1HFY10 SSS growth of 7%, this will bring full year FY06/10 SSS growth to approximately 11-12%, which is a lot higher than management’s guidance and our forecast of 4-5% and 4% respectively.
The higher-than-expected SSS growth was mainly due to a rise in customer traffic in Parkson stores, as we understand that the average item price and transaction values were more or less unchanged during the year, at RM50 and RM110 respectively; and a growth in market share in the middle to upper middle income retail segment at the expense of its competitors, namely Isetan, Metrojaya, Tangs, etc.
We are thus adjusting our SSS growth assumption for Malaysia in FY06/10 to 10% (to be on the conservative side), from 4% previously, while we are leaving SSS growth assumptions for FY11-12 unchanged at 5% p.a. Management continues to guide for a 5-6% SSS growth in FY11-12, as it believes the strong growth in FY10 will most likely not be repeated due to the low base effect in FY09. Although the strong growth numbers are encouraging, we note that Malaysia only contributes 25% and 3.8% to PHB’s total revenues and PBT respectively.
With regards to new store openings, Parkson opened 3 stores in FY06/10, which is above our previous assumptions of 2 stores. We understand that management plans to open 2 stores in FY06/11, and one store in FY06/12, in line with our forecasts. We are thus increasing our FY06/10 new stores opening
assumption for Malaysia to 3.
? Vietnam SSS growth was above expectations too. For the 1H CY10, Vietnam chalked up a respectable SSS growth of 27%, which is slightly above management’s earlier guidance of 20-25% but significantly above our expectations of 15% for FY10.
The reason for the stronger-than-expected SSS growth for Vietnam is the lack of competition, with virtually no other stores targeting Parkson’s middle to upper middle income retail segment. Parkson plans to open one store in 4Q CY10, in Ho Chin Minh City, which is below our forecast and management’s previous guidance of 2 stores for FY10.
We understand that the process of opening new stores in Vietnam has been challenging due to the difficulty in obtaining government permits, thus holding up development programme. Despite this, management continues to hold on to its target of opening 3 stores per year in Vietnam in FY11-12 for now.
Nevertheless, while we are upping our SSS growth assumptions for Vietnam to 20% (from 15-18%) for FY10-12, we are reducing our new store assumption to one store (from 2 stores) in FY10 and 2 stores (from 3 stores) in FY11-12.
? The major growth driver, China, is in line with expectations. Despite both Malaysia and Vietnam chalking up above expectations 1H CY10 SSS growth, our original expectation on the overall groupbottomline is still mostly intact as China’s contribution, which comprises 72% and 95% to revenues and PBT respectively, are in line with our expectations.
For 1H CY10, China recorded a SSS growth of 10-11%, while the beginning of 2H CY10 continues to see double-digit SSS growth.
Assuming this growth is maintained for the rest of the CY, this would be in line with our SSS assumptions of 10% for FY12/10. Store openings in China have also been on track, with the latest store opening at Shaoxing in May, and another store in Beijing due to open in end-August 2010.
Management expects another three stores to be opened in 4Q CY10, bringing total number of new stores in CY10 to 5, which is above our expectation of 4 new stores. For CY11- 12, management expects to open another 5 new stores p.a., which is above our assumption of 4 new stores in CY11, but in line with our assumption of 5 new stores in CY12.
We are thus changing our new store assumption to 5 for CY10-12. We are maintaining our SSS growth assumptions at 10% for CY10 and 11% for CY11-12 respectively, although we note our CY11-12 projections are slightly below management’s targets of 12-15% p.a..
? Injection of PRG managed stores. PRG is likely to inject 2 stores by the end of this year, namely Shantou and Qingdao, and as previously mentioned, the price will likely be within its historical acquisition PE of 13-17 times.
In terms of financing the acquisitions and new store openings, we note that although Parkson has the capacity to further leverage its current 0.5x net gearing, it would not need to obtain any additional financing in the medium term, barring any major acquisitions, given its annual operating cashflow of RM800-900m.
Parkson has recently refinanced its US$125m bonds that were due in May 2010, with a lower effective interest rate of less than 5% (previously more than 6%). Management is looking for its bonds to be upgraded to investment grade to secure more favourable interest rates when it is time to refinance its US$200m bonds which are due in Nov 2011.
Forecast
? FY10-12 earnings increased by 0.9-4.2%, after accounting for the changes in assumption for Malaysia’s SSS growth and new store assumptions, Vietnam’s SSS growth and new store assumptions, and China’s new store assumption.
Risks
? Risks to our view. The risks include sharper-than-expected contraction in consumer spending in China, Malaysia and Vietnam. Valuations And Recommendation
? Reiterate Outperform. After the earnings upgrade, our SOP derived fair value for Parkson is thus increased to RM7.72 (from RM7.45 previously).
We like Parkson as it provides a cheaper alternative to the robust China retail industry, at less demanding valuations than its HK listed subsidiary, Parkson Retail Group.
We also favour the company due to its stable expansion strategy, along with its strong cashflow and asset light business model. We thus reiterate our Outperform call on the stock.
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