Monday, March 17, 2008

Parkson Holding Berhad

Parkson Holding Berhad owned department stores in PRC, Malaysia and Vietnam. The jewel at the moment is 55% controlling interest in Parkson Retail Group Limited(PRGL) listed in Hong Kong Stock Exchange. PRGL is the largest and among the most profitable department stores in PRC, which they owned 41 stores in 26 cities. ROE has been consistently at the mid 20 plus for the last few years though with some leverage.

Big Picture
The PRC retail market is a RMB 8.90 trillion (US $ 1.3 trillions) market and expected to be top 5 retail market in the world.

What they impressed me the most is the company has been growing much faster than the industry. In 2007, though same store sales growth was in line with the industry but their rapid expansions driving operating revenue growth of about 46%, 3 times faster than the retail industry.

The company targets at least 15% floor space growth.

At least 5 new stores are confirmed to be open in 2008.

PRGL has been acquiring minority interests in the department stores. The acquisitions will contribute earnings to the group immediately.

Though the earning is not significant yet, with the growing of middle class, spending power surely to rise and contribute to future earnings (3 to 5 years).

New store like the Parkson Pavillion which will double the floor space of Malaysian operations, more earnings will flow through soon.

With such a bright growth prospect of implied 40-50% earnings growth for RPGL for the next few years, the company is really undervalued: selling at RM 6/share with trailing PE of 20+ times. Assuming Malaysia and Vietnam earnings are free, we are buying into PRGL at a discount of 30% at the price of HKD 65/share. If the current pessimisms were to continue to push down the PE multiple, selling growth stock like mature one? This is for sure is a steal. I am sure this is an irresistible once a lifetime opportunity to double or triple my money!

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