Parkson Retail Asia

HSBC RESEARCH, Aug 26

PARKSON Retail Asia (PRA) posted a revenue decline of 2.3 per cent y-o-y in Q4 ended June 2014 (-2.8 per cent y-o-y for the full year) on the back of negative same store sales growth (SSSG) of -0.8 per cent and -5.4 per cent in Malaysia and Vietnam, respectively. Discretionary retail spending in both countries stayed weak, with consumer sentiment remaining subdued.

Despite the revenue decline, gross profit grew by 3.9 per cent y-o-y (+0.5 per cent y-o-y for the full year) to S$65 million as the gross margin expanded to 62.6 per cent in Q4, FY14 from 58.8 per cent in Q4, FY13 due to reduced discounting and less stock shrinkage. However, operating expenditure grew at a faster pace - at 5.1 per cent y-o-y (+3.3 per cent y-o-y for the full year) to S$56 million - primarily due to costs attributable to new store openings.

As a result, Ebit declined by 9.6 per cent y-o-y in Q4, FY14 (-11.4 per cent y-o-y for the full year) to S$3 million and NPAT (net profit after tax) decreased by 35.9 per cent y-o-y to S$3 million (-12.5 per cent y-o-y for the full year) due to lower net interest income.

The full year results were broadly in line with our estimates as we had anticipated a weak FY June 2014. In line with our expectations, PRA's dividend yield jumped to 6.5 per cent as it paid out 108 per cent of its earnings (as it believes the level of cash on the balance sheet is more than adequate).

Fiscal year 2015 is likely to deliver better results.

FY June 2014 marked the second consecutive fiscal year of profit decline for PRA. While we anticipate that the retail environment will remain weak in Malaysia and Vietnam for the remainder of the calendar year, we think the second half of FY June 2015 could mark a turning point for the company's performance.

We raise our revenue forecasts by 2 per cent and our NPAT estimates by 6 per cent for FY June 2015-16. We believe our FY June 2015 estimates are conservative as we only forecast a 3.4 per cent y-o-y increase in revenue and a 12.9 per cent y-o-y rise in NPAT. Our NPAT estimates are in line with Thomson Reuters Datastream consensus forecasts.

We reiterate our overweight call and raise our DCF (discounted cash flow)-based TP to S$1.12, from S$1.10, on the back of the above forecast changes as well as a DCF roll-forward. The key catalyst would be improving y-o-y performance, most likely in H2, FY15. PRA is currently trading at a 14.7 times FY15 estimated PE against a sector average of 26.3 times.

OVERWEIGHT

Singapore Banks

HSBC Global Research, Jan 16

DESPITE only +2 per cent earnings growth, bank stocks rose 5-15 per cent against the Straits Times Index, which was flat in 2013. PE multiples expanded to 12 times as of end-2013 from 11.6 times a year ago. The performance can be attributed to resilient earnings and what we surmise as hope of better earnings ahead and reversion to mean PE multiples.

EPS growth will drive stocks in 2014. With 2014 earnings growth expected to be modest as loan growth and fee income moderate, it is difficult to imagine further PE multiple expansion. Stock prices will be dictated by EPS growth in 2014. We are expecting only 5 per cent earnings growth in 2014 after baking in blue-sky scenario assumptions for non-interest income, operating cost and credit cost.

The sector is now trading at 1.2 times 2014 book value (BV) and 11 times 2014 EPS. Key risk to our view is net interest margin (NIM) expansion, but we see this as minimal as it will depend on rising short- term interest rates.

DBS remains as our top pick. Despite outperforming in 2013, DBS should continue to do well, given its less demanding 1.2 times 2014 P/B and 11 times 2014 PE multiples.

While we like UOB as a bank, we believe its stock performance will be relatively weaker than DBS, as its ROE profile gradually converges with DBS. Meanwhile, OCBC's performance will depend on its merger and acquisition aspirations.

We lower our 2013-15 core EPS forecasts by 0-5 per cent mainly on lower non-interest income and higher credit costs. Our revised 2013 EPS forecasts imply a sequentially weaker Q4 2013 with core net profit down by 12 per cent/2 per cent/0 per cent q-o-q for DBS/OCBC/UOB. Our 2014 earnings estimates are now 2-8 per cent below consensus. We also lower our target prices to reflect lower sustainable ROEs following the changes to our earnings forecasts.