9feb12 - parkson initiate

DMG & Partners Securities Pte Ltd may have received compensation from the company(s) covered in this report for its corporate finance or its dealing activities; this report is therefore classified as a non-independent report. Please refer to important disclosures at the end of this publication. of this publication

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February 9, 2012

SINGAPORE EQUITYInvestment Research

DMG & Partners Research Initiation of coverage Private Circulation Only

CONSUMER

Melissa Yeap +65 6232 3897 [email protected]

PARKSON RETAIL ASIA NEUTRAL

Price SS$1.52

Terence Wong, CFA +65 6232 3896 terence.wong@ sg.oskgroup.com

Previous n/a

Target SS$1.50

Retail

PRA is a department store operator with 37 Parkson stores in Malaysia, seven in Vietnam, six Centro stores and one Kem Chicks supermarket in Indonesia. It is 68% owed by Parkson Holdings Bhd. Stock Profile/Statistics Bloomberg Ticker PRA SP STI 2,982 Issued Share Capital (m) 677 Market Capitalisation (US$m) 1,029 52 week H | L Price (S$) 1.550 1.045 Average Volume (‘000) 722 YTD Returns (%) 22 Net gearing (%) Net Cash Altman Z-Score Na ROCE/WACC 2.2 Beta (x) Na Book Value/share (S¢) 22 Major Shareholders (%) Parkson Holdings Berhad 67.6 PT Mitra Samaya 7.4 JP Morgan Chase & Co 7.0

Share Performance (%) Month Absolute Relative 1m 20.2 9.3 3m 22.1 17.8 6m Na Na 12m Na Na 6-month Share Price Performance

Firing on three cylinders

We initiate coverage on Parkson Retail Asia with a NEUTRAL rating and DCF-derived TP of SS$1.50 (WACC of 9.2% ,terminal growth rate of 2%). This translates into an implied FY13F P/E of 18x, in line with its Southeast Asian department store peers. We like the stock as it offers investors: 1) A unique multi-country exposure into three high growth developing countries (Malaysia, Vietnam and Indonesia) which are driven by strong domestic consumption; 2) It is a well-established chain, holding the number one and two positions in the department store space in Vietnam (37% market share) and Malaysia (19% market share) respectively; 3) It only entered Indonesia in June 2011 via M&A which has given it a 2.5% market share but we believe this share will grow once PRA works its magic. We expect FY12-14F earnings to grow at a CAGR of 24% largely driven by same store sales growth and new store openings. Expect FY12-14F earnings CAGR of 24%. We are forecasting FY12-14F earnings to grow at a CAGR of 24%, spurred largely by same store sales growth as well as new store rollout. Apart from the one leasehold property in Hai Phong, Vietnam which it acquired for S$49m (22,603 sq m), the rest of its retail space are on long term leases of 15 years. Hence, expansion is not expected to incur heavy capex. The Company intends to distribute 40-50% of its profits to shareholders. FV of S$1.50, NEUTRAL. We have a DCF-derived TP of S$1.50 (WACC: 9.2% and terminal growth rate: 2%) which translates into FY13F P/E of 18x, in-line with its Southeast Asia peers in the department store space. Over the past year, its HK-listed sister company, Parkson Retail Group (3368 HK), which operates 49 stores in China has traded at an average P/E of 23x while its Malaysian-listed parent company, Parkson Holdings (PKS MK) traded at 18x. FYE 30 Jun 2010A 2011A 2012F 2013F 2014F Turnover (S$m) 333.0 367.3 474.0 564.7 681.7 Net profit (S$m) 21.4 35.0 45.9 55.4 70.3 % Chg YoY 87.0 63.8 31.0 20.9 26.9 Consensus (S$m) nm nm 45.9 56.0 68.2 EPS (S¢) 3.6 5.9 6.8 8.2 10.4 DPS (S¢) nil 9.4 3.0 3.7 4.7 Div Yield (%) nil 6.2 2.0 2.4 3.1 ROE (%) 15.2 28.4 30.4 30.0 31.0 ROA (%) 7.3 12.2 13.1 13.3 14.2 P/E (x) 42.5 25.9 22.5 18.6 14.7 P/B (x) 6.5 7.4 6.8 5.6 4.5

Source: Company and OSK|DMG Estimates

.

1.10

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60

4-Nov-11 18-Nov-11 2-Dec-11 16-Dec-11 30-Dec-11 13-Jan-12 27-Jan-12

See important disclosures at the end of this publication 2

See important disclosures at the end of this publication

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TABLE OF CONTENTS

Company description 3 Products/merchandise 7 Retail Network 9 Use of IPO Proceeds 11 Investment Merits 12 Investment Risks 17 Earnings Outlook 18

Valuation 22

Peer Comparison 25

APPENDICES: Appendix 1: Department Store Industry Outlook: Malaysia 26 Appendix 2: Department Store Industry Outlook: Vietnam 28 Appendix 3: Department Store Industry Outlook: Indonesia 30 Appendix 4: Management Profile 32 Financial Tables 33 Disclaimer 34



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COMPANY DESCRIPTION

Parkson Retail Asia (PRA SP) is a South East Asia department store operator with 36 Parkson stores in Malaysia, seven in Vietnam and six Centro department stores as well as one Kem Chicks supermarket in Indonesia. Overall it has 50 stores spanning across 497,108 sqm of retail space. It is the sister company of Hong Kong listed Parkson Retail Group Ltd (PRG) (3368 HK). PRA and PRG are 68% and 52% owned by parent, Malaysian-listed, Parkson Holdings Berhad (PKS MK) respectively. Parkson Holdings Berhad is, in turn, 20% owned by Malaysian tycoon, Tan Sri William Cheng who also controls the Lion Group.

Figure 1: The Parkson Group

Source: Company data

Figure 2: PRA Milestones


1st

store in Malaysia 24 years ago, now #2. Parkson established its first department store in Malaysia 24 years ago in 1987. That store is still in existence but since then it has expanded its retail network to 36 stores across the country, occupying a total leased retail space of 325,766sqm. According to Euromonitor, Parkson was the number two department store in Malaysia in 2010, with a 19.2% market share of total retail sales.

Ventured into Vietnam in 2005, now #1. The Group expanded its footprint into Vietnam in 2005 where it now operates and manages seven Parkson branded department stores, located in Ho Chi Minh City (5), Hanoi (1) and Hai Phong (1). These seven stores occupy a total leased retail space of 102,062sqm and owned retail space of 22,603 sqm. Total retail space amounts to 124,665sqm. It was ranked the top department store in Vietnam, with a market share of 36.7% in 2010. Entered Indonesia in June 2011, 2.5% market share. The Group recently entered Indonesia via the acquisition of PT. Tozy Sentosa (TS) in June 2011. TS is the operator of six “Centro” branded department stores and one “Kem Chicks” branded gourmet supermarket in Indonesia, occupying a total leased retail space of 46,677 sqm. It has a 2.5% market share in Indonesia.



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Overall 50 stores across 497,108sqm. PRA operates 49 departmental stores and one gourmet supermarket across Malaysia, Vietnam and Indonesia. Figure 3: Summary of Store Network

Source: Company data * Indonesia includes the gourmet supermarket The following maps show the geographic distribution of its stores in Malaysia, Vietnam and Indonesia. Figure 4: Parkson’s 37 stores in Malaysia




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Figure 5: Parkson’s 7 stores in Vietnam


Figure 6: Parkson’s 7 stores in Indonesia




Figure 7: FY11 revenue breakdown by


Malaysia: Still home base. forward we still expect Malaysia to be its main earnings contributor. Figure 8: FY09


0

50

100

150

200

250

300

350

400

S$m



: FY11 revenue breakdown by country

Company data

Malaysia: Still home base. The Group derives ~80% of sales from Malaysia and going forward we still expect Malaysia to be its main earnings contributor.

: FY09-FY11 revenue growth

Company data

Malaysia, 87%

Vietnam, 12%

Indonesia, 1%

FY09 FY10

262.8 293.5

320.9

37.4 39.4

2year revenue CAGR of 11%

6

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The Group derives ~80% of sales from Malaysia and going forward we still expect Malaysia to be its main earnings contributor.

Malaysia, 87%

FY11

320.9

42.4

4.0

Malaysia

Vietnam

Indonesia



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Products/Merchandise Parkson offers a wide range of merchandise in its departmental stores. The Group categorises them into four categories. Merchandise sales make up ~96% of revenues.

� Fashion and apparel

� Cosmetics and accessories

� Household, electrical goods and others

� Groceries and perishables Figure 9: Merchandise sold in FY11


Merchandise are sold via two avenues: direct sales and through concessionaires. Direct sales For direct sales, the Group basically sources and sells its own direct-purchase merchandise. Most of its direct sales includes sales in its “household, electrical goods and other” and “groceries and perishables” product categories as well as cosmetic products in Malaysia. Concessionaire sales The Group enters into concessionaire agreements with certain suppliers (known as concessionaires) who display and sell their products in designated areas in its stores. Concessionaires are responsible and bear the expenses for the design, display and fitting out of their counters as well as for repair and maintenance while the Group provide general facilities such as lighting, air conditioning as well as customer service training to the concessionaire’s sales staff to ensure certain standards are met. “Fashion and apparels” and “cosmetics and accessories” account for the bulk of concessionaire sales except in the case of Malaysia where cosmetics are sold under direct sales.

Fashion & apparel

55%Cosmetics & accessories

27%

Household14%

Grocerries3%



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A standard concessionaire agreement will specify the type of product to be sold as well as price points. Concessionaires are not allowed to alter their product mix nor price their products in the Group’s stores higher than elsewhere in the same country. Agreements are subject to yearly renewals. A turnover commission in the form of a percentage of sales is agreed upon and charged on concessionaires, typically based on a agreed minimum commission amount which is determined by a minimum sales target. The minimum commission amount typically ranges from 15%-30% (excluding groceries and perishable goods) depending on the type of product. Sales from concessionaire sales are collected by the Group and then paid out to concessionaires according to their respective credit terms after deduction of relevant expenses, fees and commissions. The Group also collects certain other fees from concessionaires that include promotional, administration, credit card handling and loyalty programme fees. Vietnam has a higher portion of concessionaire sales. Between Malaysia and Vietnam, Vietnam has a higher percentage of concessionaire sales at 96%:4% vs Malaysia’s 75%:25%. The table further breaks down merchandise sales for the respective countries including Indonesia. Figure 10: Breakdown in Merchandise Sales for 3 Countries


Concessionaire sales: ~25% of merchandise sales. The Group generated merchandise sales of S$659.9m, S$767.5m and S$851.6m in 2009, 2010 and 2011 of which proceeds from concessionaire sales amounted to S$497.3m, S$598.3m and S$671.1m accounting for 25.4%, 25.0% and 25.3% of revenues respectively. Rental income: Derived from subleasing certain designated areas of its stores to restaurants, fast food outlets, salons, supermarkets and photo shops; and

Consultancy and management service fees: Derived from its three managed stores in Ho Chi Minh City, Vietnam that it manages

Stated in S$m S$ % S$ % S$ % S$ %

Malaysia

-Concessionaire sales 382.0 71% 467.8 74% 528.4 75% 528.4 75%

-Direct sales 157.8 29% 164.1 26% 173.5 25% 173.5 25%

-Subtotal 539.9 100% 631.9 100% 701.9 100% 701.9 100%

Vietnam

-Concessionaire sales 115.3 96% 130.4 96% 134.6 96% 134.6 96%

-Direct sales 4.8 4% 5.1 4% 5.4 4% 5.4 4%

-Subtotal 120.1 100% 135.5 100% 139.9 100% 139.9 100%

Indonesia

-Concessionaire sales 8.1 82% 84.0 81%

-Direct sales 1.7 18% 20.0 19%

-Subtotal 9.8 100% 104.0 100%

TOTAL 659.9 767.5 851.6 945.8

Note:

- Only commissions on concessionaire sales form part of reported revenue. Total concessionaire sales above is for ref only

- Merchandise sales for TS is for full year financial year 2011 including period prior to acquisition on 9 June 2011

2009 2010 2011 2011 (includes TS)



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RETAIL NETWORK

MALAYSIA

� 36 department stores

� Total retail space of 325,766 sq m

Figure 11: Retail Network in Malaysia




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VIETNAM

� 7 department stores

� Total retail space of 124,665 sq m

� Spent ~S$49m to acquire leasehold property in Hai Phong with space of 22,603 sq m

Figure 12: 7 Outlets in Vietnam


INDONESIA

� Entered market via acquisition of PT Satozy Sentosa (TS) in June 2011 � TS operates the six Centro branded departmental stores and one Kem Chicks

supermarket in Indoensia.

Figure 13: 7 Outlets in Indonesia


2-3 years for a store to turn profitable. On average, it takes between 2-3 years for a new store to turn profitable. As a store matures, sales per sqm will rise.

"Centro" brand

1 Plaza Semanggi Nov 2003 8 7,305 Jakarta

2 Discovery Shopping Mall Dec 2004 7 7,501 Kuta, Bali

3 Margo City Mall Mar 2006 5 6,402 Greater Jakarta

4 Ambarrukmo Plaza Jun 2006 5 7,045 Yogyakarta

5 Mall of Indonesia Sep 2008 3 9,232 North Jakarta

7 Galaxy Mall Aug-11 7,572 Surabaya

"Kem Chicks" brand

7 Pacif ic Place Nov 2007 1,620 Jakarta

Total floor space 46,677

No Indonesia StoresDate

Commenced

Age

(Years)

Retail space

(sqm)City



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Use of IPO Proceeds With an IPO offer price of S$0.94 per share, the Group generated net proceeds of S$69.2m, which has been earmarked for the following purposes:

� ~S$60m (US$48.8m) or 79.8 cents for each S$1 of gross proceeds will be for new store openings in Malaysia, Indonesia, Vietnam and Cambodia;

� ~S$5m (US$4.1m) or 6.6 cents for each S$1 of gross proceeds will be for IT investment and

� ~S$4.2m (US$3.4m) or 5.6 cents for each S$1 will be for maintenance capital

expenditure in Malaysia, Vietnam and Indonesia. Capex will be on new stores and refurbishments. Capex for FY12 will be approximately S$41m, comprising S$16m for existing stores and S$20m for new stores and S$5m for IT investment. Capex for FY13 is projected to be S$45m, comprising S$5m for existing stores and S$40m for new stores. We estimate capex to range at a similar amount for FY14. Capital expenditure for new stores varies by country. In Indonesia it is higher at US$2-3m while in Malaysia and Vietnam cost are on par and lower at US$1-2m per store.



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INVESTMENT MERITS

Multi-country exposure: Malaysia, Vietnam and Indonesia. PRA is one the unique department store player that offers a multi-country exposure. Moreover, all the countries it is operating in are projected to experience healthy economic growth. Between 2011 and 2015, department store retail sales are projected to grow at a CAGR of 4.5% in Malaysia, 9.1% in Vietnam and 10.7% in Indonesia. No. 2 in Malaysia with 19.2% market share. Having been in Malaysia over the past 24 years, PRA has established itself as the number two department store in the country with a 19.2% market share in terms of retail sales. It is only second to AEON which owns the chain of Jusco department stores in Malaysia with a 42.5% grip on the market. …. and market share has been growing. We note that PRA’s market share in Malaysia has been gradually growing from 16.9% in 2008 to 17.9% in 2009 and to 19.2% in 2010. Figure 14: Market share of top department stores in Malaysia

Source: Euromonitor International 2011 * sales for Parkson includes only non-food sales product sales while others likely to include a mix of food and non-food products

Number one in Vietnam, 36.7% market share. Parkson is the clear market leader in the

Vietnam department store landscape holding a 36.7% market share in terms of retail value

sales in 2010. It is considered the pioneer in the department store business, starting its

operations there since 2005. It was the first company to operate a chain of department stores

whilst others were stand-alone outlets.

… where market share has also been growing. PRA’s market share in Vietnam has also been growing like in Malaysia. In 2008, it held a 26.5% market share before rising to 32.0% in 2009 and 36.7% share in 2010. Its other main competitor is the Diamond brand department store owned by International Business Center Corporation in Ho Chi Minh City.



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Figure 15: Retail value sales market share of departmental store players

Source: Euromonitor International 2011 * sales for Parkson includes only non-food sales product sales while others likely to include a mix of food and non-food products

Vietnam: big department stores gaining popularity. It appears that the big department store retailers are gaining market share in the expense of smaller retailers and mom and pop shops which has seen its share fall from 45.4% in 2008 to 33.6% in 2010. Fast growth in Indonesia. PRA has a 2.5% share of the Indonesian department store industry, which was valued at US$2.8b in 2010 and is projected to grow at a CAGR of 10.7% between 2011 and 2015. In June 2011, PRA spent US$12.8m to acquire TS, which operates the “Centro” branded department stores in Indonesia and one “Kem Chicks” gourmet supermarket. The purchase was for US$12.8m plus a sale of 9.9% in PRA to PT Mitra Samaya(MS), the former owners of TS at S$15.8m. The stake has been reduced to 7.4% with the IPO. Figure 16: Retail value sales market share of departmental store players

Source: Euromonitor International 2011 * Sales for Parkson include only non-food sales product sales while others likely to include a mix of food and non-food products



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Well-recognised brand name in Malaysia and Vietnam. Having been in the Malaysian departmental store scene over the past 24 years, the Group has managed to establish itself as one of the premium departmental stores. Its popularity in Malaysia and Vietnam is evident in the numbers where it is ranks number two and number one respectively. …. and China via sister company. Apart from having a presence in Malaysia and Vietnam, Parkson is also a well recognised brand in China where its sister company, Parkson Retail Group (3368 HK) operates 46 stores as at 30 June 2011. …leading it to be a preferred partner. Due to its strong brand presence and dominant market position, it has become the the preferred point of entry for international brands planning to enter the Malaysian and Vietnamese retail markets via department stores. This allows it to offer customers a better mix of merchandise. The table below illustrates the awards and accolades it has won. Figure 17: Parkson’s Awards and Accolades


Asset light: depends largely on a concessionaire model. PRA adopts a largely asset light strategy, relying in large part on concessionaire sales. In Malaysia, the mix between concessionaire and direct sales is 75%/25% and in Vietnam 96%/4%. In Indonesia the mix is 82%/18%. The mix lower in Malaysia as cosmetics are sold via direct sales there. … concessionaire sales accounted for 79% of Group merchandise sales. Overall, concessionaire sales make up for 79% of total merchandise sales in 2011. The proportion has been growing over the past several years growing from 75.4% in FY09, 78.0% in FY10 to 78.8% in FY11. Concessionaire sales are appealing as PRA collects all payments from customers and later only remits a portion of these proceeds to its concessionaires. It typically has credit terms of 30-90 days from suppliers. Its turnover days was 55 days, 54 days and 56 days for FY09, FY10 and FY11 respectively. By operating largely on the concessionaire model, the risks and costs of holding inventories as well as fit-out, selling and shrinkage costs are all borne by the concessionaires. As inventory is directly managed by each concessionaire, overall working capital requirement is also lowered.

Award Awarding Body Year Awarded

5th Most Valuable Brand in Malaysia The Edge Malaysia 2008 -2009

Overall Best Retail Outlet Malaysia Retailers Association 2009/2010

for Parkson Pavilion 2008/2009

Malaysia Retailers Association 2008/2009

Best Department Store Malaysia Retailers Association 2010/2011

Parkson KLCC 2007/2008

Parkson Subang Parade 2006/2007

Parkson One Utama

Most Favourite Vietnamese Brand Sai Gon Giai Phong newspaper 2006-2010

Ho Chi Minh City People's Committee

Most Famous Brand in Vietnam AC Nielson 2008

Vietnam Chambers of Commerce & Industry

Cosmopolitan magazine 2010

The Assoc of Accredited Advertising Agents

Malaysia

Innovative Shopping Outlet

(Department Store) category - Parkson

Pavilion

Readers' Choice Award: Lifestyle

Department Store - Centro



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Large pool of loyalty cardholders. PRA participates in a multi-party loyalty programme in Malaysia through BonusLink, which is operated by a third party and allows cardholders to use the card at a variety of other speciality retail and service outlets. In Vietnam and Indonesia, it has its own loyalty programmes. Loyalty programme members are entitled to points for purchases which can later be redeemed for discount vouchers or products. Members also receive special discounts on selected items and are eligible to participate in special promotional events at stores. As at 30June2011, the Group has over 1.28m active loyalty cardholders in Malaysia, over 65,000 active loyalty cardholders in Vietnam and approximately 200,000 active loyalty cardholders in Indonesia. Access to this large database of information enhances Parkson’s ability to understand its customers purchasing habits, tailor product and brand mix as well as customize marketing and promotional activities. … 50% of sales are generated by loyalty card holders. Evidence of the effectiveness of its loyalty cards is reflected in its sales. In FY11, 54.5%, 50.0% and 51.0% of total merchandise sales in Malaysia, Vietnam and Indonesia respectively were generated by loyalty cardholders. Same stores sales growth (SSSG) that beats industry. Stores in Malaysia had a SSSG of 11% in FY10 and 9.7% in FY11 beating the Malaysian department store industry’s -0.3% in CY09 and 10.7% in CY10. In Vietnam, SSSG was 26.6% in FY10 and 22.4% in FY11, beating industry’s 9.9% in CY09 and 5.8% in CY10. We forecast annual SSSG of 7% in Malaysia, 9% in Vietnam and 5% in Indonesia from FY12-14. Efforts taken to further increase store productivity include among others, to increase its average unit selling price, value per transaction and customer traffic. To achieve those goal, it will periodically change merchandise offerings, maximise customer flow and optimising space allocation for each concessionaire or supplier. Expanding existing store network. The Group will ramp up the rollout of its retail network across Malaysia, Vietnam and Indonesia. A store typically takes approximately two to three years to become profitable with sales volume growing as an outlet matures. In Indonesia, the Group has opened a new store in Indonesia at Galaxy Mall in August 2011, aims for another one and it will lease additional floor space for its Centro store in Bali. We believe down the road, it will introduce “Parkson” branded department stores alongside its Centro stores in Indonesia. In Malaysia it has opened a new store at KL Festival City and and in Vietnam, it will add one more. In total we should expect a total of four new stores by June 2012. For FY13, rate of expansion is faster and we can expect two new stores in Malaysia, 2-3 in Vietnam and 4-5 in Indonesia. Total new stores would be 7-8. Capital expenditure for new stores varies by country. In Indonesia, it is higher at US$2-3m while in Malaysia and Vietnam cost are on par and lower at US$1-2m per store.



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Figure 18: New Store Pipeline


Location City/Country Lease Area (sq m)

Oct-11 KL Festival City Kuala Lumpur, Malaysia 11,653

Oct-11 Parkson Landmark 72 Hanoi, Vietnam 29,038

Oct-11 Summarecon Mal Serpong Tangerang, Indonesia 10,261

1Q FY13 Setia City Mall Kuala Lumpur, Malaysia 11,459

1Q FY13 Nu Sentral Kuala Lumpur, Malaysia 12,833

1Q FY13 B8 Mall Johor Bahru, Malaysia 10,394

2Q FY13 Metropolitan Grand Bekasi, Indonesia 11,370

2Q FY13 Parkson Cantavil Ho Chi Minh, Vietnam 15,293

2Q FY13 Parkson Emperor Complex Ho Chi Minh, Vietnam 11,448

3Q FY13 Parkson Cambodia Phnom Penh City, Cambodia 30,000

3Q FY13 Plaza Merdeka Kuching, Malaysia 12,554

3Q FY14 Vinacapital Commercial Center Da Nang, Vietnam 18,791

3Q FY14 TD Plaza Saigon Ho Chi Minh, Vietnam 30,000

Target

Commencement



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INVESTMENT RISKS

Forex risks. PRA’s earnings are denominated in Malaysian Ringgit, Vietnamese Dong and Rupiah while it reports its earnings in Singapore dollar. It is particularly affected by the SGDMYR rate. That said, this is just an accounting issue as all profits generated in the respective countries are usually re-invested in store refurbishments and new store openings. Dependance on Malaysia. In FY11, Malaysia accounted for 80% of PRA’s revenues. It is largely dependant on the market. Should there be any economic downturn or political instability, it will be negatively impacted. That said, we do not see this risk as high as it has been operating in the country for the past 27 years. Failure in Indonesia. While PRA has proven itself in Malaysia and Vietnam, the Indonesian department store landscape is very different. When it ventured into Vietnam in 2005, it was the pioneer there giving it the first mover advantage. Indonesia’s market is rather mature with the two big giants PT Ramayana Lestari Sentosa Tbk and PT Matahari Department Store Tbk dominating the scene. It’s acquired Centro department stores just hold a 2.6% market share. There is the risk that it may not be able to succeed as well in Indonesia as it has done in Malaysia and Vietnam. Choosing the wrong location for new stores. There is the risk that being new to the Indonesian and Cambodia scene, the Group might choose the wrong site for its new outlet and have to shut down. However we view this risk as low as the Group has had many years of experience in site location under its belt.



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EARNINGS OUTLOOK

FY11-14F earnings CAGR of 26%. We forecast Group earnings to grow at a CAGR of 26% between FY11-14, driven by same store sales growth as well as new store openings. Demand should remain robust, supported by healthy economic growth in its operating countries of Malaysia, Vietnam and Indonesia. Furthermore, we should see improving margins stemming from a better merchandise mix as well as economies of scale.

Figure 19: PRA Revenue and Earnings Forecast

Source: Company data and OSK|DMG estimates Revenue can be broken down into four main categories:

1. Direct sales 2. Commissions from concessionaire sales 3. Consultancy & management service fees 4. Rental income

In S$m Jun-09 Jun-10 Jun-11 Jun-12F Jun-13F Jun-14F

Revenue 301.2 333.0 367.3 474.0 564.7 681.7

Other income: - - - - - -

-Finance income 1.8 3.3 4.9 4.3 5.1 6.7

-Other income 3.2 3.2 5.8 4.3 4.5 4.7

- - - - - -

Chgs in merchandise inventories & consumables (133.1) (140.4) (151.7) (193.8) (229.8) (274.0)

Employee benefits expense (29.8) (35.5) (34.8) (44.6) (51.4) (61.3)

Depreciation & amortisation (13.5) (15.5) (15.2) (15.2) (20.8) (26.1)

Promotional & advertising (5.4) (5.1) (7.2) (9.0) (10.7) (13.0)

Rental expenses (66.3) (67.1) (69.6) (90.1) (106.7) (128.2)

Finance costs (0.1) (0.1) (0.5) (0.2) (0.2) (0.2)

Other expenses (40.7) (43.4) (47.4) (61.6) (72.3) (85.9)

Total Expenses (288.8) (307.1) (326.4) (414.5) (492.0) (588.6)

- - - - - -

PBT 17.4 32.5 51.6 68.1 82.3 104.4

Tax (5.3) (10.1) (15.8) (21.1) (25.5) (32.4)

PAT 12.1 22.4 35.8 47.0 56.8 72.0

MI (0.7) (1.1) (0.8) (1.1) (1.4) (1.7)

PATMI 11.4 21.4 35.0 45.9 55.4 70.3

Gross Profit 168.1 192.5 215.6 280.1 334.8 407.6

EBIT 15.8 29.2 47.3 72.7 87.6 111.3

EBITDA 29.2 44.7 62.5 87.9 108.4 137.4

Margins

Gross Profit 55.8% 57.8% 58.7% 59.1% 59.3% 59.8%

EBIT 5.2% 8.8% 12.9% 15.3% 15.5% 16.3%

EBITDA 9.7% 13.4% 17.0% 18.5% 19.2% 20.2%

PBT 5.8% 9.8% 14.0% 14.4% 14.6% 15.3%

PAT 4.0% 6.7% 9.8% 9.9% 10.1% 10.6%

PATMI 3.8% 6.4% 9.5% 9.7% 9.8% 10.3%

Tax % -30.3% -31.0% -30.6% -31.0% -31.0% -31.0%

MI % of PAT -5.8% -4.8% -2.3% -2.4% -2.4% -2.4%

Growth 0.0% 0.0% 0.0% 0.0% 0.0%

Revenue 10.5% 10.3% 29.0% 19.1% 20.7%

EBIT 85.3% 61.6% 53.7% 20.6% 27.1%

EBITDA 53.0% 39.6% 40.7% 23.4% 26.7%

PBT 86.7% 58.8% 31.9% 20.9% 26.9%

PAT 84.9% 59.6% 31.2% 20.9% 26.9%

PATMI 87.0% 63.8% 31.0% 20.9% 26.9%

FY11-14F earnings CAGR 26%



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Figure 20: Revenue Breakdown by Category

Source: Company data We have forecast a slight dip in the % of concessionaire sales over direct sales in FY13 as PRA enters Cambodia, a new market. We feel it might take a year before it secures more concessaionaires and will have to initially rely more on direct sales. Figure 21: Merchandise Sales


55% of merchandise sales from fashion & apparels. PRA derives the bulk of its merchandise sales from the sale of fashion and apparels. Cambodia to start operations in 3QFY13. Management targets to start its Cambodia store in Phnom Penh in 3QFY13 (Jan-Mar 2014). The store will occupy 30,000sqm of retail space. We are forecasting a very conservative S$800 average sales per sqm in FY13 for the one quarter that it will be under operation and estimating a 10% YoY growth in average sales per sm to S$880 in FY14. We have assumed a merchandise sales mix of 80% direct sales and 20% concessionaire sales. In terms of commission rates from concessionaire sales, we are forecasting 20%. Cambodia is expected to contribute S$6.0m to Group revenue in FY13 in its first quarter ofoperations and S$26.4m in FY14.


Revenue 301.2 333.0 367.3 474.0 564.7 681.7

By Category

1) Direct Sales 162.6 169.2 180.6 233.4 279.1 347.0

2) Commissions from concessionaire sales 126.3 149.6 169.5 221.5 264.5 311.0

3) Consultancy & management service fees 0.5 0.9 1.4 1.6 1.7 1.9

4) Rental income 11.8 13.2 15.9 17.5 19.4 21.7

Total Revenue 301.2 333.0 367.3 474.0 564.7 681.7

% of revenue

Direct Sales 54% 51% 49% 49% 49% 51%

Commissions from concessionaire sales 42% 45% 46% 47% 47% 46%

Consultancy & management service fees 0% 0% 0% 0% 0% 0%

Rental income 4% 4% 4% 4% 3% 3%

growth %

Direct Sales 0% 4% 7% 29% 20% 24%

Commissions from concessionaire sales 0% 18% 13% 31% 19% 18%

Consultancy & management service fees 0% 85% 53% 10% 10% 10%

Rental income 0% 12% 20% 10% 11% 12%

Total revenue 0% 11% 10% 29% 19% 21%

162.6 169.2 180.6

233.4

279.1

347.0

126.3

149.6 169.5

221.5

264.5

311.0

0

50

100

150

200

250

300

350

400

Jun-09 Jun-10 Jun-11 Jun-12F Jun-13F Jun-14F

Direct sales Commission from concessionaire salesIn S$m



DMG Research

OSK Research


Other revenue/income

Other revenue or income apart from merchandise sales are consultancy and management service fee and rental income. Consultancy and management service fee is derived from its managed stores in Vietnam. In FY11, fees rose by 53% or S$0.5m as a result of the opening of one new managed store in Ho Chi Minh City in January 2011.

Figure 22: Consultancy & management service fee Figure 23: Rental income

Source: Bloomberg Source: Bloomberg

Figure 24: Breakdown of FY11 operating expenses

Source: Company data COGS tied only to direct sales not concessionaire sales. In FY11, changes in merchandise, inventories and consumables (COGS) accounted for 46% of total operating expenses. This translated into a gross profit margin of 58.7%, up 0.9ppt from 57.8% in FY10. We note that gross margins have gradually been improving as a result of higher concessionaire sales.

0.5

0.9

1.4

1.6

1.7

1.9

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0


S$m Consultancy & management service fees

11.8

13.2

15.9

17.5

19.4

21.7

10

12

14

16

18

20

22

24


S$mRental income

Chgs in merchandise inventories &

consumables, 46%

Employee benef its

expense, 11%

Depreciation & amortisation, 5%

Promotional & advertising, 2%

Rental expenses, 21%

Finance costs, 0%

Other expenses, 15%



DMG Research

OSK Research


Figure 25: % Operating expenses to revenue


Do not expect A&P costs to fall dramatically. While PRA develops scale in its operations, its operating expenses is expected to fall leading to margin expansion. While advertising and promotion costs (A&P) usually trend lower, we do not expect it to fall dramatically as it has just entered the Indonesian market and would need to fork out money to promote itself. Likewise it will need to promote aggressively when it enters Cambodia. …. But overall overheads should trend lower. Other expenses such as staff costs and rent should trend lower as a percentage of sales as it scales up in Indonesia and Cambodia. Rents, labour costs and other overheads are cheaper in these countries. Figure 26: Margin expansion

Source: Company data Gradual margin expansion. As we expect PRA to derive economies of scale as it expands its retail network, we should see some margin expansion going forward.


Operating Expenses:

Chgs in merchandise inventories & consumables (133.1) (140.4) (151.7) (193.8) (229.8) (274.0)

Employee benefits expense (29.8) (35.5) (34.8) (44.6) (51.4) (61.3)

Depreciation & amortisation (13.5) (15.5) (15.2) (15.2) (20.8) (26.1)

Promotional & advertising (5.4) (5.1) (7.2) (9.0) (10.7) (13.0)

Rental expenses (66.3) (67.1) (69.6) (90.1) (106.7) (128.2)

Finance costs (0.1) (0.1) (0.5) (0.2) (0.2) (0.2)

Other expenses (40.7) (43.4) (47.4) (61.6) (72.3) (85.9)

Total Operating Expenses (288.8) (307.1) (326.4) (414.5) (492.0) (588.6)

Revenue 301.2 333.0 367.3 474.0 564.7 681.7

% total opex/ revenue -96% -92% -89% -87% -87% -86%

55.8%57.8% 58.7% 59.1% 59.3% 59.8%

3.8%6.4%

9.5% 9.7% 9.8% 10.3%

0%

10%

20%

30%

40%

50%

60%

70%


Gross Profit PATMI



DMG Research

OSK Research


VALUATION

NEUTRAL with FV of S$1.50. We have a DCF-derived TP of S$1.50 (WACC: 9.2%, terminal growth rate 2%) which implies a FY13 P/E of 18x, in line with its Southeast Asian peers in the department store space. Its closest rival in Malaysia, AEON which owns the chain of Jusco department stores is trading at a lower forward consensus P/E of 13x. We think the premium valuation for PRA over AEON is justified given that it offers investors aunique proposition by providing exposure into three high growth markets: 1) Malaysia, 2) Vietnam and 3) Indonesia. Furthermore it operates on an asset light strategy, leasing all of its retail space except for one site in Vietnam. Over the past year, its HK-listed sister company, Parkson Retail Group (3368 HK), which operates 49 stores in China has traded at an average P/E of 23x while its Malaysian-listed parent company, Parkson Holdings (PKS MK) traded at 18x. Figure 27: DCF-derived TP

Total PV 907

Cash 108.4

Debt 1.0

Fair value (S$m) 1,014

No of shares (m) 677

Value per share (S$) 1.50

WACC ( r ) 9.2%

Source: OSK|DMG estimates Run up of ~62% since IPO. The popularity of Parkson is evident from the recent run up in share price since its first day of trading. It had an IPO price of S$0.94 and opened at S$1.13 on its first day of trading. At last close of S$1.52, it is up ~62% from its IPO price. Figure 28: Share price performance since IPO

Source: Bloomberg

1.00

1.10

1.20

1.30

1.40

1.50

1.60

4-Nov-11 18-Nov-11 2-Dec-11 16-Dec-11 30-Dec-11 13-Jan-12 27-Jan-12

Price - S$

+62% from IPO price of S$0.94



DMG Research

OSK Research


Figure 29: PRA SP P/E Trading Band

Source: Bloomberg

Figure 30: Sister 3368HK P/E Trading Band

Source: Bloomberg

19.0

20.0

21.0

22.0

23.0

24.0

25.0

26.0

27.0

3-Nov-11 17-Nov-11 1-Dec-11 15-Dec-11 29-Dec-11 12-Jan-12 26-Jan-12 9-Feb-12

Mean: 22x

+1SD: 24x

-1SD: 20x

15.0

20.0

25.0

30.0

35.0

40.0

45.0

30-Sep-08 31-Mar-09 30-Sep-09 31-Mar-10 30-Sep-10 31-Mar-11 30-Sep-11

Mean: 28x

+1SD: 35x

-1SD: 22x



DMG Research

OSK Research


Figure 31: PKS MK P/E Trading Band

Source: Bloomberg

PRA’s Malaysian-listed parent, Parkson Holdings Berhad which owns 68% of the latter has been trading at 18x P/E for the past year.

Figure 32: DMG vs consensus

OSK|DMG vs consensus

FY12 FY13 FY14

OSK|DMG Revenue 474.0 564.7 681.7 Consensus as at 9Feb12 454.5 528.3 609.3 variance % 4% 7% 12%

OSK|DMG PATMI 45.9 55.4 70.3 Consensus as at 9Feb12 46.9 57.5 70.0 variance % -2% -4% 0%


-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

29-Jun-01 29-Jun-03 29-Jun-05 29-Jun-07 29-Jun-09 29-Jun-11

Mean: 11x

+1SD: 18x

-1SD: 4x



DMG Research

OSK Research


Figure 33: Peer Comparison

Source: Bloomberg and OSK|DMG estimates

STOCK Bloomberg Ticker Price Net D/E (x) Yield (%)

9-Feb-12 Yr 1 Yr2 Yr 1 Yr2 Yr 1 Yr2 Yr 1 Yr2 FY12 FY12

Southeast Asia department stores

PARKSON RETAIL ASIA LTD pra sp equity 1.52 22.5 18.6 6.8 5.6 11.4 9.4 30.4 30.0 (71.2) 2.0

AEON CO (M) BHD aeon mk equity 7.65 15.6 13.7 2.2 2.2 6.1 5.4 15.7 14.8 (29.4) 2.1

MITRA ADIPERKASA TBK PT mapi ij equity 5,650.00 28.3 21.6 5.6 5.3 11.9 9.8 14.6 21.8 48.1 0.4

RAMAYANA LESTARI SENTOSA PT rals ij equity 800.00 14.2 12.3 2.0 2.0 6.6 5.9 13.8 15.2 (40.5) 3.8

ROBINSON DEPARTMENT STORE PU robins tb equity 43.00 30.5 24.4 5.7 5.3 16.2 13.0 23.3 20.3 (43.1) 1.4

Industry Average (ex-PRA) 22.1 18.0 3.9 3.7 10.2 8.5 16.8 18.0 (16.2) 1.9

Southeast Asia supermarkets

DAIRY FARM INTL HLDGS LTD dfi sp equity 9.91 28.3 25.9 16.8 14.4 18.2 16.6 65.4 51.3 (28.2) 1.9

SHENG SIONG GROUP LTD ssg sp equity 0.50 17.1 17.7 10.4 5.0 15.7 13.5 48.0 29.0 (99.5) Na

SUMBER ALFARIA TRIJAYA TBK P amrt ij equity 4,000.00 37.1 27.7 10.3 10.7 14.6 11.4 25.9 32.0 38.5 Na

CP ALL PCL cpall tb equity 58.00 32.2 26.4 13.1 12.8 17.1 14.7 36.5 45.2 (112.2) 1.7

BIG C SUPERCENTER PCL bigc tb equity 122.00 25.3 22.2 4.6 4.4 12.3 10.9 14.7 17.1 (25.1) 1.6

SIAM MAKRO PUBLIC CO LTD makro tb equity 259.00 25.1 19.6 6.6 6.4 13.3 11.7 21.0 31.1 (42.9) 3.4

Industry Average 27.5 23.2 10.3 8.9 15.2 13.1 35.2 34.3 (44.9) 2.2

Hong Kong department stores

PARKSON RETAIL GROUP LTD 3368 hk equity 10.06 19.9 17.2 4.4 4.4 11.4 9.9 23.5 24.3 (50.7) 2.0

GOLDEN EAGLE RETAIL GROUP 3308 hk equity 18.20 23.7 19.1 7.1 6.4 15.5 12.3 29.1 30.5 (47.9) 1.0

LIFESTYLE INTL HLDGS LTD 1212 hk equity 17.96 18.2 15.8 3.9 3.6 13.4 11.5 21.1 21.4 (14.5) 2.1

INTIME DEPARTMENT STORE 1833 hk equity 9.24 18.2 14.4 2.5 2.4 14.9 11.9 15.6 15.8 26.2 2.0

SPRINGLAND INTERNATIONAL HOL 1700 hk equity 4.86 17.2 14.1 2.6 2.4 9.7 7.9 15.5 16.1 (38.0) 2.3

MAOYE INTERNATIONAL HLDGS 848 hk equity 1.89 12.9 9.3 1.5 1.6 8.7 6.4 15.8 16.2 45.4 Na

NEW WORLD DEPT STORE CHINA 825 hk equity 4.86 12.8 10.5 1.5 1.4 3.5 2.9 16.5 12.7 (74.5) 3.3

PCD STORES GROUP LTD 331 hk equity 1.29 11.0 8.9 1.8 1.7 6.2 4.7 15.2 19.0 (12.9) 3.5

Industry Average 16.7 13.6 3.2 3.0 10.4 8.4 19.0 19.5 (20.9) 2.3

United States Department Stores

MACY'S INC m us equity 35.86 12.8 10.9 2.6 2.5 6.0 5.8 16.6 20.9 107.8 1.0

J.C. PENNEY CO INC jcp us equity 42.35 34.9 23.6 2.0 2.2 9.6 8.1 7.6 8.9 8.7 1.9

SAKS INC sks us equity 10.88 28.4 22.2 1.5 1.7 7.6 6.8 4.3 7.1 26.5 Na

KOHLS CORP kss us equity 50.14 11.7 10.2 2.0 2.0 5.5 5.3 14.5 18.0 21.9 2.0

Industry Average 21.9 16.7 2.0 2.1 7.2 6.5 10.8 13.7 41.2 1.6

Australia Department Stores

DAVID JONES LTD djs au equity 2.52 9.5 9.2 1.6 1.7 5.7 5.4 22.0 18.2 15.3 15.9

MYER HOLDINGS LTD myr au equity 2.06 8.7 8.3 1.4 1.4 5.0 4.8 18.7 17.2 44.4 15.6

Industry Average 9.1 8.7 1.5 1.5 5.3 5.1 20.3 17.7 29.8 15.7

Global Average 19.5 16.1 4.2 3.9 9.7 8.3 20.4 20.6 (2.2) 4.7

P/E (x) P/B (x) EV/EBITDA ROE (%)



APPENDIX 1: DEPARTMENT STORE INDUSTRY OUTLOOK

Malaysia’s Economy

� Malaysian economy grew at a CAGR of 17.2% from 2005 to 2008 prior to the

financial crisis

� GDP per capita grew at a CAGR of 15% from 2005 to 2008 from US$5,280 to US$8,036

� Between 2011

and 6.4% respectively to reach US$331b and US$10,774 respectively in 2

Malaysia’s Department Store Industry

� The Malaysian department store retail market enjoyed robust double

12.3%, 29.6% and 13.2% in 2006, 2007 and 2008

� Slight decline of 3.1% in 2009 due to the global financial crisis

with a 10.7% growth

� Between 20

� The industry was valued at US$2.5b in 2010 and is projected to

between 2011 to 2015

� PRA ranks number two in terms of retail value sales in 2010

� Have forecasted SSSG of 7% annually for FY12

Figure 34: GDP and GDP per capita (2005

Source: Euromonitor International 2011

Figure 36: Market Share

Source: Euromonitor International 2011* sales for Parkson includes only nonfood products




’s Economy

Malaysian economy grew at a CAGR of 17.2% from 2005 to 2008 prior to the

financial crisis

GDP per capita grew at a CAGR of 15% from 2005 to 2008 from US$5,280 to US$8,036

Between 2011-2015, GDP and GDP per capita are expected to grow at a CAGR of 7.9%


’s Department Store Industry

The Malaysian department store retail market enjoyed robust double

12.3%, 29.6% and 13.2% in 2006, 2007 and 2008

Slight decline of 3.1% in 2009 due to the global financial crisis

10.7% growth

Between 2005-2010, grew at a CAGR of 12.1%

The industry was valued at US$2.5b in 2010 and is projected to


PRA ranks number two in terms of retail value sales in 2010

forecasted SSSG of 7% annually for FY12-FY14.

GDP and GDP per capita (2005-2015) Figure 35: Consumption expenditure & consumer expenditure per capita (2005


Market Share

Euromonitor International 2011 * sales for Parkson includes only non-food sales product sales while others likely to include a mix of food and non

43%

19%

17%

7%

3%3%

3%2% 3%

26

DMG Research

OSK Research


APPENDIX 1: DEPARTMENT STORE INDUSTRY OUTLOOK - MALAYSIA

Malaysian economy grew at a CAGR of 17.2% from 2005 to 2008 prior to the global

GDP per capita grew at a CAGR of 15% from 2005 to 2008 from US$5,280 to US$8,036

2015, GDP and GDP per capita are expected to grow at a CAGR of 7.9%


The Malaysian department store retail market enjoyed robust double-digit growth of

Slight decline of 3.1% in 2009 due to the global financial crisis but rebounded in 2010

The industry was valued at US$2.5b in 2010 and is projected to grow at a CAGR of 4.5%

PRA ranks number two in terms of retail value sales in 2010

Consumption expenditure & consumer expenditure per capita (2005-2015)

International 2011

food sales product sales while others likely to include a mix of food and non-

AEON Co (M) Bhd

Parkson Corp Sdn Bhd

The Store Corp Bhd

Isetan (M) Sdn Bhd

Milimewa Superstore Sdn

Bhd

Robinson & Co Ltd



AEON Co which owns the Jusco chain of department stores is the leading player in the Malaysian department store market. In terms of retail sales value in 2010 It held a 42.5% market share compared to Parkson’s 19.2%. Its’ other rival, number of outlets in Malaysia however isnt a direct competitor as it the low to middle inc Figure 37: Number of outlets of top players


In terms of number of outlets in Malaysia, Parkson ranks number two.

Figure 38: Selling space of top players


515151

0

10

20

30

40

50

60

The Store

Corp Bhd

309309

353

0

50

100

150

200

250

300

350

400

AEON Co

(M) Bhd

Selling space ('000 sm)



AEON Co which owns the Jusco chain of department stores is the leading player in the Malaysian department store market. In terms of retail sales value in 2010 It held a 42.5% market share compared to Parkson’s 19.2%.

Its’ other rival, The Store which owns the Millimewa and The Store chain, number of outlets in Malaysia but saw its market share declined by

isnt a direct competitor as it targets a different target market than Parkson, serving low to middle income consumers.

Number of outlets of top players

Company data


Selling space of top players

Company data

32

21

17

75

36

21

17

75

51

36

23

17

75

The Store

Corp Bhd

Parkson

Corp Sdn

Bhd

AEON Co

(M) Bhd

Milimewa

Superstore

Sdn Bhd

Metrojaya Robinson &

Co Ltd

2008 2009

319

259

103

83

43

337

259

10384

43

353

315

259

103

84

43

AEON Co Parkson

Corp Sdn

Bhd

The Store

Corp Bhd

Milimewa

Superstore

Sdn Bhd

Metrojaya Isetan (M)

Sdn Bhd


2008 2009 2010

27

DMG Research

OSK Research


AEON Co which owns the Jusco chain of department stores is the leading player in the Malaysian department store market. In terms of retail sales value in 2010 It held a 42.5%

the Millimewa and The Store chain, has the most saw its market share declined by 0.8% in 2010. The Store

targets a different target market than Parkson, serving


3 2

28

3 2

28

3 2

32

Isetan (M)

Sdn Bhd

Suiwah

Corp Bhd

Others

2010

18 14

86

18 18

100

4318 18

155

Isetan (M) Robinson &

Co Ltd

Suiwah Corp

Bhd

Others

2010



APPENDIX 2: DEPARTMENT STORE

Vietnam’s Economy

� Between 2011 to 2015, Vietnam is forecasted to experience GDP growth at a CAGR of

12.1% and GDP per capita growth of 11.2%

� Consumer expenditure and expenditure per capita are forecast to grow at a CAGR of

10.6% and 9.7% respectively between 2011 and 2015

Vietnam’s Department Store Industry

� Vietnam’s

and 2008

� During the global financial crisis in 2009, it grew by 9.9% and a further 5.8% in

� The industry was valued at US$355m in 2010 and is projected to grow at a CAGR of

9.1% between 2011 to 2015

� Have forecasted SSSG of 9% for FY12

Figure 39: GDP and GDP per capita (2005


Figure 41: 2010 Market Share

Source: Euromonitor International 2011* Sales for Parksonfood products



: DEPARTMENT STORE INDUSTRY OUTLOOK

Vietnam’s Economy

Between 2011 to 2015, Vietnam is forecasted to experience GDP growth at a CAGR of

12.1% and GDP per capita growth of 11.2%

Consumer expenditure and expenditure per capita are forecast to grow at a CAGR of

and 9.7% respectively between 2011 and 2015

Vietnam’s Department Store Industry

Vietnam’s department store retail sales value grew by a CAGR of 22.5% between 2005

During the global financial crisis in 2009, it grew by 9.9% and a further 5.8% in

The industry was valued at US$355m in 2010 and is projected to grow at a CAGR of


Have forecasted SSSG of 9% for FY12-14



2010 Market Share

Euromonitor International 2011 * Sales for Parkson include only non-food sales product sales while others likely to include a mix of food and non

37%

20%

6%

3%

34%

28

DMG Research

OSK Research


INDUSTRY OUTLOOK - VIETNAM

Between 2011 to 2015, Vietnam is forecasted to experience GDP growth at a CAGR of


sales value grew by a CAGR of 22.5% between 2005

During the global financial crisis in 2009, it grew by 9.9% and a further 5.8% in 2010

The industry was valued at US$355m in 2010 and is projected to grow at a CAGR of

Consumption expenditure & consumer per capita (2005-2015)

Euromonitor International 2011


Parkson Corporation

International Business

Center Corp

Hasegawa Vietnam Co

Trang Tien Plaza Co Ltd

Others



Figure 42: Number of outlets of top players


Figure 43: Selling space of top players


56

0

5

10

15

20

25

30

Parkson

Corporation

86

111

0

20

40

60

80

100

120

140

160

180

200

Parkson Corporation





Company data


Company data

1 1

6

1 1

6

1 1

Parkson

Corporation

International

Business Center

Corp

Hasegawa Vietnam

Co

Trang Tien Plaza

2008 2009 2010

8 7

111

8 7

111

8 7

Parkson Corporation International Business

Center Corp

Hasegawa Vietnam Co Trang Tien Plaza Co Ltd


2008 2009 2010

29

DMG Research

OSK Research


1

23

1

24

1

26

Trang Tien Plaza

Co Ltd

Others

12

150

12

154

12

183

Trang Tien Plaza Co Ltd Others




Indonesia’s Economy

� Between 2005 to 2008, Indonesia’s GDP and GDP per capita grew at a CAGR of 21.3%

and 19.8% respectively

� In 2010, it experience double digit GDP growth of 27.9% while GDP per

26.5%

� GDP and GDP per capita are expected to grow at a CAGR of 11.8% and 10.7% from

2011 to 2015

� Consumer expenditure and expenditure per capita are forecast to grow at a CAGR of


Indonesia’s Department Store Industry

� Retail value sales are expected to grow at a CAGR of 10.7% between 2011 to 2015

� Have assumed SSSG of 5% for FY12

still new to the market

Figure 44: GDP and GDP per capita


Figure 46: Retail value sales market share of departmental store

Source: Euromonitor International 2011* Sales for Parkson include only nonfood products

2.30%2.50%

0.40%

0.20%




Indonesia’s Economy

Between 2005 to 2008, Indonesia’s GDP and GDP per capita grew at a CAGR of 21.3%

and 19.8% respectively

In 2010, it experience double digit GDP growth of 27.9% while GDP per

GDP and GDP per capita are expected to grow at a CAGR of 11.8% and 10.7% from

2011 to 2015



’s Department Store Industry

value sales are expected to grow at a CAGR of 10.7% between 2011 to 2015

Have assumed SSSG of 5% for FY12-14. Assumed rate appears conservative as PRA is

still new to the market



Retail value sales market share of departmental store

Euromonitor International 2011 * Sales for Parkson include only non-food sales product sales while others likely to include a mix of food and non

32.70%

23.20%

10.90%

4.60%

2.30%2.50%

0.40%0.40%

0.20%

22.90%

30

DMG Research

OSK Research


APPENDIX 3: DEPARTMENT STORE INDUSTRY OUTLOOK - INDONESIA

Between 2005 to 2008, Indonesia’s GDP and GDP per capita grew at a CAGR of 21.3%

In 2010, it experience double digit GDP growth of 27.9% while GDP per capita grew at

GDP and GDP per capita are expected to grow at a CAGR of 11.8% and 10.7% from


value sales are expected to grow at a CAGR of 10.7% between 2011 to 2015

14. Assumed rate appears conservative as PRA is

Consumption expenditure & consumer expenditure per capita (2005-2015)


Retail value sales market share of departmental store players


PT Matahari Department

Store TbkPT Ramayana Lestari

Sentosa TbkPT Mitra Adiperkasa Tbk

PT Akur Pratama

PT Metropolitan

RetailmartPT Tozy Sentosa

PT Sarinah (Persero)

PT Golden Retailindo Tbk

PT Rimo Surabaya Lestari

TbkOthers



Dominated by two giantsgiants – PT Matahari Department Store Tbk (spun off from PT Matahari Putra Prima Tbk) and PT Ramayana Lestari Sentosa Tbk. PT Matahari Department Store Tbk (MDS) is expected to retain its top market share in 2010). It plans to open 150 new stores within a 10Generation stores targets the middle and high income consumers while Parkson’s recently acquired Centro department stores target the middle income. PRA’s stores Java Island while one is at Kuta Bali. Figure 47: Number of outlets of top players


Figure 48: Selling space of top


101102 110

0

50

100

150

200

250

300

350

PT Ramayana

Lestari

Sentosa Tbk

512 525566

0

200

400

600

800

1000

1200

PT Ramayana

Lestari Sentosa

Tbk

Selling space ('000sqm)



Dominated by two giants. Indonesia’s department store retail market is dominated by two PT Matahari Department Store Tbk (spun off from PT Matahari Putra Prima Tbk)

and PT Ramayana Lestari Sentosa Tbk.

PT Matahari Department Store Tbk (MDS) is expected to retain its top market share in 2010). It plans to open 150 new stores within a 10Generation stores targets the middle and high income consumers while Parkson’s recently acquired Centro department stores target the middle income.

held a 2.5% share of retail sales in 2010. Four out of the five are located on sland while one is at Kuta Bali.





84

54

17 12 5 4

88

54

176 5

11098

52

188 5

PT Ramayana

Lestari

Sentosa Tbk

PT Matahari

Department

Store Tbk

PT Akur

Pratama

PT Mitra

Adiperkasa

Tbk

PT Sarinah

(Persero)

PT Tozy

Sentosa Metropolitan

Retailmart

2008 2009 2010

425

210156

4966

40

441

210156

49 33 40

566

491

224

156

49 44

Ramayana PT Matahari Department Store Tbk

PT Mitra Adiperkasa

Tbk

PT Akur Pratama

PT Metropolitan Retailmart

PT Sarinah (Persero)

PT Tozy Sentosa

Selling space ('000sqm)

2008 2009 2010

31

DMG Research

OSK Research


Indonesia’s department store retail market is dominated by two PT Matahari Department Store Tbk (spun off from PT Matahari Putra Prima Tbk)

PT Matahari Department Store Tbk (MDS) is expected to retain its top position (32.7% market share in 2010). It plans to open 150 new stores within a 10-15 year period. Its New Generation stores targets the middle and high income consumers while Parkson’s recently

held a 2.5% share of retail sales in 2010. Four out of the five are located on

4 7 2

299

4 3 2

315

4 2 2

308

PT

Metropolitan

Retailmart

PT Rimo

Surabaya

Lestari Tbk

PT Golden

Retailindo

Tbk

Others

2010

11 23

892

4011 9

978

4011 5

927

PT Tozy Sentosa

PT Golden Retailindo

Tbk

PT Rimo Surabaya

Lestari Tbk

Others



DMG Research

OSK Research


APPENDIX 4: MANAGEMENT PROFILE

Figure 49: Management Profile


Management Role

Datuk Cheng Yoong Choong Been with the Group since 1987

Group Managing Director Also the Group MD of PRGL listed on the Hong Kong Stock Exchange

Bachelor of Science in Business Administration and MBA from University of San Francisco

Mr Toh Peng Koon Also President Director of Indonesian operations

CEO of Malaysian operations Been with Group since 1988

Will oversee the operations and business strategy development of Group in Malaysia

Responsible for growth strategies for Indonesian operations

Mr Tham Tuck Choy Been with Group since 1987

CEO of Vietnamese & Responsible for establishing Group's operations in Vietnam

Cambodian operations Prior to PRA, was with retail group Emporium in Malaysia from 1975-1987



DMG Research

OSK Research


FINANCIAL TABLES

Source: Company data and DMG estimates

Profit & Loss Statement

FYE Jun (S$m) FY10 FY11 FY12F FY13F FY14F

Revenue 333 367 474 565 682

COGS (140) (152) (194) (230) (274)

Gross Profit 193 216 280 335 408

Other income:

-Finance income 3 5 4 5 7

-Other income 3 6 4 5 5

Operating Expenses:

Employee benefits expense (35) (35) (45) (51) (61)

Depreciation & amortisation (15) (15) (15) (21) (26)

Promotional & advertising (5) (7) (9) (11) (13)

Rental expenses (67) (70) (90) (107) (128)

Finance costs (0) (1) (0) (0) (0)

Other expenses (43) (47) (62) (72) (86)

Total Expenses (167) (175) (221) (262) (315)

PBT 33 52 68 82 104

Tax (10) (16) (21) (26) (32)

PAT 22 36 47 57 72

MI (1) (1) (1) (1) (2)

PATMI 21 35 46 55 70

EBIT 29 47 73 88 111

EBITDA 45 62 88 108 137

Balance Sheet


Cash and cash equivalents 127 96 108 127 167

Trade and other receivables 18 24 31 37 45

Inventories 47 52 67 79 95

Others 0 1 1 1 1

Current assets 192 173 208 245 308

Property, plant and equipment 74 70 96 120 134

Intangible assets 0 7 6 6 6

Others 28 36 40 44 48

Non-current assets 101 113 143 170 188

Total assets 294 286 350 415 496

Trade and other payables 125 125 160 190 226

ST Borrowings 0 1 1 1 1

Others 21 29 30 32 33

Current liabilities 146 154 191 223 260

LT Borrowings 0 0 0 0 0

Deferred tax 1 0 0 0 0

Others 4 5 5 5 5

Non-current liabiilities 5 5 5 5 5

Total liabilities 151 159 196 228 265

Share capital 21 159 159 159 159

Reserves 1 -133 -131 -128 -124

Retained profits 118 97 122 153 191

Shareholder's Equity 140 123 151 184 227

MI 3 4 4 4 4

Total equity 143 127 154 188 230

Cash Flow


PBT 33 52 68 82 104

Depreciation & non Cash Adj 20 14 11 16 20

Change in working capital 20 2 13 11 14

Interest income 3 4 4 5 7

Interest expense 0 0 0 0 0

Tax -8 -16 -21 -26 -32

CFO 67 55 75 89 112

Capex -26 -10 -41 -45 -40

Other Investing CF 0 3 0 0 0

CFI -26 -6 -41 -45 -40

Dividends 0 -56 -21 -25 -32

Other Financing CF 1 -15 0 0 0

CFF 1 -71 -21 -25 -32

Free cash flow 41 46 34 44 72



DMG Research

OSK Research


DMG & Partners Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months

Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain

Neutral: Share price may fall within the range of +/- 10% over the next 12 months

Take Profit: Target price has been attained. Look to accumulate at lower levels

Sell: Share price may fall by more than 10% over the next 12 months

Not Rated: Stock is not within regular research coverage

DISCLAIMERS This research is issued by DMG & Partners Research Pte Ltd and it is for general distribution only. It does not have any regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluate particular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this report. The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject to change without notice. This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities. DMG & Partners Research Pte Ltd is a wholly owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK Investment Bank Berhad and Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited. DMG & Partners Securities Pte Ltd and their associates, directors, and/or employees may have positions in, and may effect transactions in the securities covered in the report, and may also perform or seek to perform broking and other corporate finance related services for the corporations whose securities are covered in the report. As of the day before 9 February 2012, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do not have proprietary positions in the subject companies, except for: a) Nil b) Nil As of the day before 9 February 2012, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for:

Analyst Company a) Nil b) Nil

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DMG & Partners Securities Pte. Ltd.

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Singapore 049315 Tel : +(65) 6533 1818 Fax : +(65) 6532 6211

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Tel : +(852) 2525 1118 Fax : +(852) 2810 0908

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Room 6506, Plaza 66 No.1266, West Nan Jing Road

200040 Shanghai China

Tel : +(8621) 6288 9611 Fax : +(8621) 6288 9633

PT OSK Nusadana Securities Indonesia

Plaza CIMB Niaga, 14th Floor,

Jl. Jend. Sudirman Kav.25, Jakarta Selatan 12920,

Indonesia. Tel : (6221) 2598 6888 Fax : (6221) 2598 6777

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Bangrak, Bangkok 10500 Thailand

Tel: +(66) 2200 2000 Fax : +(66) 2632 0191

9feb12 - parkson initiate

Documents

parkson stores

parkson retail group

department store space

price s

parkson group source

store sales growth

turnover s

fv of s