KUALA LUMPUR: The recent growing interest in Parkson Holdings Bhd from the Government of Singapore Investment Corp Pte Ltd (GIC) could spell good things for the former’s shareholders, in light of the proposed listing of its Asean retail arm, Parkson Retail Asia Pte Ltd (Parkson Asia), said market observers.
GIC had been actively purchasing shares of Parkson Holdings, increasing its interests to 55.72 million shares or 5.09% as of Monday, after emerging as a substantial shareholder with a 5% stake or 55.03 million shares on Aug 24, just eight days after Parkson Holdings announced its intention to list Parkson Asia.
“I have no idea of the intention behind GIC’s interest in Parkson Holdings. But the proposed listing could obviously unlock the value of Parkson Asia and fund its future growth,” an analyst with a standalone brokerage firm told The Edge Financial Daily yesterday.
The proposed listing of Parkson Asia came at a time where parent Lion Group is in need of funds to resume the construction of its RM3.2 billion blast furnace project, which is critical to make its steel operation competitive in light of the infiltration of cheap imports.
“The question is whether part of the proceeds from Parkson Asia’s IPO would be channelled to the Lion Group’s steel project. But having said that, GIC’s interest in Parkson Holdings signals a potential value inherent in the exercise to take Parkson Asia public,” says a market observer.
To recap, Parkson Holdings on Aug 16 announced its proposal to list its 90.1%-owned unit Parkson Asia on the main board of the Singapore stock exchange by the end of this year. Indonesia’s PT Mitra Samaya owns the remaining 9.9% equity interest in Parkson Asia.
Parkson Asia’s net asset as at June 30, 2010 amounted to some S$140.3 million (RM346.28 million). This includes its 36 Parkson-branded stores in Malaysia, seven Parkson-branded stores in Vietnam as well as five Centro-branded stores and one Kem Chicks-branded gourmet supermarket in Indonesia.
Although the amount of proceeds to be raised from Parkson Asia’s IPO was not made known, news reports indicated that it could amount to as much as S$500 million.
While the proposed listing is still at a preliminary stage, the market took the news flow positively and shares of Parkson Holdings remained well above the RM5.40 level since Aug 16, the day the announcement was made public, despite the current market jittery. The counter closed 11 sen or 2.02% higher at RM5.56 yesterday with a total of 664,400 shares changing hands.
“A lot depends on how the proceeds are used. Another thing is that Parkson Holdings could see smaller earnings contribution from Parkson Asia once it is listed because of its reduced shareholding too. It’s pretty hard to tell at this juncture,” said the analyst.
MIDF Research, in a research note on Aug 17, expected Parkson Asia to contribute about 15% of Parkson’s FY12 ending June 30 earnings, with the rest contributed by its China retail arm Parkson Retail Group Ltd, which is listed in Hong Kong.
According to the research house, excluding the proceeds to be raised from the IPO, Parkson Holdings’ valuation could amount to RM5.72 a share, or about 13.7% lower than its current target price of RM6.63 a share.
This was based on the assumption that Parkson Holdings’ 90.1% stake in Parkson Asia was pared down to 51% and Parkson Asia was valued at comparable regional peer average price-to-earnings ratio (PER) of 15 times, using sum-of-parts method.
According to Bloomberg data, the average consensus target price of Parkson Holdings was RM6.86. Out of the 14 analysts that covered the stock, 11 pegged “buy”, two “hold” and one “sell”.
This article appeared in The Edge Financial Daily, September 8, 2011.