Tuesday, August 14, 2012

Parkson Holding Berhad Update

I was not that active posting my thoughts for last few months. Some have taken that I was bearish and now have turned bullish. Not bullish but more cautious than ever. I have been constantly sounded cautious though I interjected with some "stocks talk". That is to tell my readers we can be hibernating our fingers busy keying buy and sell orders but we can never be hibernating our brains reading and thinking about companies.

I want to talk about Parkson Holding Berhad today. The stock has been performing poorly in market price terms but the earnings have been catching up -- slowly.

The last few years sold off has made Parkson pushed valuation down to one point of 12X PER. The price recovered a bit and now is selling for 13X PER. It can only be considered cheap if the earning growth is more than 15% per year. I believe this possible.

Parkson China operations still is a major driver in the revenue and earnings growth. However, the profile is changing from China-centric to emerging economies consumption centric. They are pushing their operations into Indonesia, Vietnam, Sri Langka and even Mymmar.  The revenue contribution from Vietnam and Indonesia is still relatively small.

Parkson runs 49 department stores in China and 37 Malaysia, 8 Vietnam and 7 Indonesia. It is obvious that Vietnam and Indonesia have more room to grow but this does not mean China has hit its plateau.

I kind of of agree with the assumptions from RHB estimates on new stores opening. 8 - 10 for China, 1 - 2 Malaysia, Vietnam and 2 - 4 for Indonesia.

Even we are wrong on timing, I think we should be directionally correct. At net profit of RM 601 mln or assuming single digit same store growth and 44 new stores coming on stream, that will translate into earnings of RM 0.55. At PER 15 X, this should translate into potential price RM 8.25/share. On the conservative side, let's say this cannot happen by 2014 and delay to 2015, a waiting period of 3.5 years will probably will still generate a CAGR return of 16% at the entry price of RM 4.80/share.

Government of Singapore Investment has started to accumulate this stock quietly since August 2011 with an entry of 55 million shares. They have been very active in buying for most of the time and take some profits to lower their cost. These activities also demonstrate two important investing principles that worth learning. One, excellent discipline of regular purchase at fixed interval. Two, aggressive buying at lower price. Here are their activities.

Sep 2011 3,67,300 shares. Average price RM $ 5.52
Oct 2011 1,872,900 shares. RM 5.53
Nov 2011 1,490,000 shares. RM 5.58
Jan 2012 (943,900) shares. RM 5.60
Feb 2012 (999,000) shares RM 5.71
Mar 2012 (513,400) shares RM 5.56
Jul 2012 626,100 shares. RM 4.78

Aug through 13 Aug 4,289,200. RM 4.76

( ) denotes sold.

Obviously they think the current price is worth scooping up.

Conclusion: In my personal opinion, buy-and-hold at current price between RM 4.60 ~ RM 4.8 is worth considering. Dollar averaging is also a good strategy.

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