- In a filing to Bursa Malaysia yesterday, Parkson Holdings Bhd (PHB) announced that its internal group reorganisation would not be taking place following the rejection of the proposal by Parkson Retail Group’s (PRG) independent shareholders at its EGM.

- In July 2015, PHB had proposed to dispose its entire stake in Parkson Retail Asia (PRA) to PRG’s wholly-owned subsidiary, Oroleon (Hong Kong) Ltd for a cash consideration of SGD228mil (RM641mil) or SGD 0.499/share. The percentage of votes against was 63.4%, with PHB abstaining from the voting.

- An approval by the independent shareholders would have seen PHB’s 67.6% Singapore-listed PRA being parked under its 52.7% Hong Kong-listed PRG and PHB’s effective equity interest in PRA being diluted to 35.9%.

- In view of the cessation of the proposal, PHB’s shareholders will also no longer be entitled to the cash distribution of 10 sen/share proposed in August 2015 as the payout had been conditional upon the completion of the internal reorganisation.

- We understand that the cash proceeds of RM641mil had, prior to the August announcement, only been earmarked for business expansion, new investment opportunities and working capital purposes. These include the funding for the construction of PHB’s Cambodia mall.

- As PHB, PRA and PRG have strong balance sheets (all net cash), we do not foresee any funding issues for the group.

- All in, we are placing our BUY recommendation and fair value of RM1.60/share, which is based on a PE of 9x over FY16F earnings, under review pending a meeting with management and our re-initiation report.

- Note that our present forecasts reflect the new organisation structure. We see some upside to our current earnings estimates as the disposal of PRA by PHB would have resulted in lower earnings contributions to PHB moving forward given its reduced stake in PRA. In other words, PRA’s earnings will now be consolidated vs. equity accounted for had the reorganisation taken place.

Source: AmeSecurities Research - 13 Oct 2015