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| Macquarie cuts Parkson to underperform |
| Written by Financial Daily | |||
| Tuesday, 26 May 2009 11:01 | |||
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The downgrade followed a 33% rise in Parkson’s share price since Macquarie’s last update on Feb 11. “While we are positive on Parkson’s long-term growth potential in China and Vietnam, we believe its share price has run ahead of its fundamentals. We believe any further upside on the stock will depend on an improving sales outlook, particularly in China,” Macquarie said. Nonetheless, Macquarie noted that Parkson’s increased weighting in the MSCI Index by 58%, which comes into effect May 29, may provide near-term support for its share price. Macquarie’s consumer analyst for Hong Kong and China believes price competition in the Chinese retail market will be the most intense in the mass-market segment in 2009, particularly in the coastal region, where Hong Kong-listed Parkson Retail Group Ltd, a subsidiary of Parkson Holdings, derives about 25% of its sales. “After recent meetings with Chinese retail companies, we conclude that the general expectation is that the recovery of the retail sector will lag the overall economy by at least three months. Therefore (Macquarie) does not expect a sustained sales growth recovery in the retail sector until 4QCY09,” Macquarie said in a note yesterday. Macquarie also has an underperform recommendation for Parkson Retail Group and a HK$6.20 (RM2.79) target price. It expects a continuation of discount schemes to impact Parkson Retail Group’s revenue growth. However, it believed that the management’s ongoing efforts to reduce operating expenses, such as salary and headcount control as well as lower advertising and promotion expenses, will mitigate the impact of Parkson’s discounting measures on its margins. Macquarie’s channel checks also indicated that some landlords may be agreeable to rental rebates for anchor tenants such as department stores during a slowdown. Macquarie reduced its earnings estimates for Parkson Holdings by 12% in FY09 and 9% in FY10 following the recent revision to Parkson Retail Group’s numbers, Macquarie’s latest currency assumptions and a RM32 million on-off dilution gain in 2Q09. Its unchanged RM3.90 target price for Parkson is derived on a sum-of-parts valuation. Parkson Holdings closed at RM4.66 yesterday, up two sen while Parkson Retail Group closed at HK$10.60 in Hong Kong. This article appeared in The Edge Financial Daily, May 26, 2009.
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