NEWSWIRES reported that Hutchison is considering selling its Parknshop supermarket chain. Several sales figures have been bandied around, including US$2 billion from Bloomberg. In 2012, ParknShop generated HK$21.7 billion (US$2.8 billion or S$3.5 billion) revenue and we estimate that it yielded HK$1.5 billion Ebitda. Hence, US$2 billion values ParknShop at 10 times trailing EV/Ebitda. In comparison, Big C paid 13 times for Carrefour Thailand and we estimate that Aeon bought Carrefour Malaysia for 11 times.
We think that the sale does not necessarily imply poorer prospects for Hong Kong's grocery retail market. In fact, we think that the market could even be more vibrant than its fellow Asian tiger, Singapore. As gleaned from Hutchison's retail, others and manufacturing segment (ParknShop contributes about 60 per cent of turnover), this segment reported revenue and Ebitda growth of 6 per cent as well as SSSG (same store sales growth) of 5.6 per cent for FY2012. This trend ties in with Dairy Farm's strong Hong Kong performance. Headwinds for ParknShop stem from China (not a large part of the ParknShop business), with the banner reporting declines in revenue and Ebitda. Again, this ties in with Dairy Farm's perspective. China has been a difficult market to operate in and the group does not have a grocery retail presence in China.
Lastly, the potential sale will give some sense of valuations for Dairy Farm's Wellcome chain. That said, it is generally accepted that Dairy Farm's valuations are rich. We expect the scarcity premium to persist, and rightly so.
We continue to rate Dairy Farm an "outperform", given its market leadership in Hong Kong and Singapore as well as its firm foothold in Asean emerging markets. We see no reason to change our EPS and residual-based target price of US$13.55 for Dairy Farm, which implies 29 times 2014 PE and 13 times 2013 P/B.
OUTPERFORM
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