February 9, 2012

SINGAPORE EQUITY Investment Research

DMG & Partners Research CONSUMER
Melissa Yeap +65 6232 3897 melissa.yeap@sg.oskgroup.com Terence Wong, CFA +65 6232 3896 terence.wong@ sg.oskgroup.com
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 STI Issued Share Capital (m) Market Capitalisation (US$m) 52 week H | L Price (S$) Average Volume (000) YTD Returns (%) Net gearing (%) Altman Z-Score ROCE/WACC Beta (x) Book Value/share (S) Major Shareholders (%) Parkson Holdings Berhad PT Mitra Samaya JP Morgan Chase & Co 67.6 7.4 7.0 PRA SP 2,982 677 1,029 1.550 1.045 722 22 Net Cash Na 2.2 Na 22

Initiation of coverage

Private Circulation Only

PARKSON RETAIL ASIA

NEUTRAL Price Previous Target SS$1.52 n/a SS$1.50

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$1.50 (WACC: 9.2% and terminal growth rate: 2%) which translates into FY13F P/E of 18x, in-line with its Southeast Asia peers in the department store space. Over the past year, its HK-listed sister company, Parkson Retail Group (3368 HK), which operates 49 stores in China has traded at an average P/E of 23x while its Malaysian-listed parent company, Parkson Holdings (PKS MK) traded at 18x.
FYE 30 Jun Turnover (S$m) Net profit (S$m) % Chg YoY Consensus (S$m) EPS (S) DPS (S) Div Yield (%) ROE (%) ROA (%) P/E (x) P/B (x) 2010A 333.0 21.4 87.0 nm 3.6 nil nil 15.2 7.3 42.5 6.5 2011A 367.3 35.0 63.8 nm 5.9 9.4 6.2 28.4 12.2 25.9 7.4 2012F 474.0 45.9 31.0 45.9 6.8 3.0 2.0 30.4 13.1 22.5 6.8 2013F 564.7 55.4 20.9 56.0 8.2 3.7 2.4 30.0 13.3 18.6 5.6 2014F 681.7 70.3 26.9 68.2 10.4 4.7 3.1 31.0 14.2 14.7 4.5

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

6-month Share Price Performance

1.60 1.55 1.50 1.45 1.40 1.35 1.30 1.25 1.20 1.15 1.10 4-Nov-11

18-Nov-11

2-Dec-11

16-Dec-11

30-Dec-11

13-Jan-12

27-Jan-12

Source: Company and OSK|DMG Estimates

.
DMG Research OSK

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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TABLE OF CONTENTS

Company description Products/merchandise Retail Network Use of IPO Proceeds Investment Merits Investment Risks Earnings Outlook Valuation Peer Comparison APPENDICES: Appendix 1: Department Store Industry Outlook: Malaysia Appendix 2: Department Store Industry Outlook: Vietnam Appendix 3: Department Store Industry Outlook: Indonesia Appendix 4: Management Profile Financial Tables Disclaimer

3 7 9 11 12 17 18 22 25

26 28 30 32 33 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

Source: Company data

1 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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st

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: Parksons 37 stores in Malaysia

Source: Company data

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Figure 5: Parksons 7 stores in Vietnam

Source: Company data

Figure 6: Parksons 7 stores in Indonesia

Source: Company data

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: Figure 7: FY11 revenue breakdown by country

Vietnam, 12%

Indonesia, 1%

Malaysia, 87%

Source: 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. Figure 8: FY09 : FY09-FY11 revenue growth

S$m
400 350 300 250 200 150 100 50 0

2year revenue CAGR of 11%

320.9 293.5 262.8

Malaysia Vietnam Indonesia

37.4

39.4

42.4 4.0

FY09
Source: Company data

FY10

FY11

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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
Grocerries 3%

Household 14%

Cosmetics & accessories 27%

Fashion & apparel 55%

Source: Company data

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 concessionaires 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.

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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 Groups 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 Malaysias 75%:25%. The table further breaks down merchandise sales for the respective countries including Indonesia. Figure 10: Breakdown in Merchandise Sales for 3 Countries
2009 Stated in S$m Malaysia -Concessionaire sales -Direct sales -Subtotal Vietnam -Concessionaire sales -Direct sales -Subtotal Indonesia -Concessionaire sales -Direct sales -Subtotal S$ % S$ 2010 % S$ 2011 % 2011 (includes TS) S$ %

382.0 157.8 539.9

71% 29% 100%

467.8 164.1 631.9

74% 26% 100%

528.4 173.5 701.9

75% 25% 100%

528.4 173.5 701.9

75% 25% 100%

115.3 4.8 120.1

96% 4% 100%

130.4 5.1 135.5

96% 4% 100%

134.6 5.4 139.9

96% 4% 100%

134.6 5.4 139.9

96% 4% 100%

8.1 1.7 9.8

82% 18% 100%

84.0 20.0 104.0

81% 19% 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

Source: Company data

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

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RETAIL NETWORK MALAYSIA 36 department stores Total retail space of 325,766 sq m Figure 11: Retail Network in Malaysia

Source: Company data

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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

Source: Company data

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
No Indonesia Stores Date Com m enced Age (Years) Retail space (sqm ) City

1 2 3 4 5 7

"Centro" brand Plaza Semanggi Discovery Shopping Mall Margo City Mall Ambarrukmo Plaza Mall of Indonesia Galaxy Mall "Kem Chicks" brand Pacific Place Total floor space

Nov 2003 Dec 2004 Mar 2006 Jun 2006 Sep 2008 Aug-11

8 7 5 5 3

7,305 7,501 6,402 7,045 9,232 7,572

Jakarta Kuta, Bali Greater Jakarta Yogyakarta North Jakarta Surabaya

Nov 2007

1,620 46,677

Jakarta

Source: Company data

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.

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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 PRAs 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 nonfood 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. PRAs 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 nonfood 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 nonfood 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: Parksons Awards and Accolades
Award 5th Most Valuable Brand in Malaysia Awarding Body Year Awarded The Edge Malaysia 2008 -2009 The Assoc of Accredited Advertising Agents Malaysia Malaysia Retailers Association 2009/2010 2008/2009 2008/2009

Overall Best Retail Outlet for Parkson Pavilion

Innovative Shopping Outlet Malaysia Retailers Association (Department Store) category - Parkson Pavilion Best Department Store Parkson KLCC Parkson Subang Parade Parkson One Utama Most Favourite Vietnamese Brand Malaysia Retailers Association

2010/2011 2007/2008 2006/2007

Sai Gon Giai Phong newspaper Ho Chi Minh City People's Committee AC Nielson Vietnam Chambers of Commerce & Industry Cosmopolitan magazine

2006-2010

Most Famous Brand in Vietnam

2008

Readers' Choice Award: Lifestyle Department Store - Centro

2010

Source: Company data

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.

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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 Parksons 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 industrys -0.3% in CY09 and 10.7% in CY10. In Vietnam, SSSG was 26.6% in FY10 and 22.4% in FY11, beating industrys 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

Target Commencement Oct-11 Oct-11 Oct-11 1Q FY13 1Q FY13 1Q FY13 2Q FY13 2Q FY13 2Q FY13 3Q FY13 3Q FY13 3Q FY14 3Q FY14
Source: Company data

Location KL Festival City Parkson Landmark 72 Summarecon Mal Serpong Setia City Mall Nu Sentral B8 Mall Metropolitan Grand Parkson Cantavil Parkson Emperor Complex Parkson Cambodia Plaza Merdeka Vinacapital Commercial Center TD Plaza Saigon

City/Country

Lease Area (sq m) 11,653 29,038 10,261 11,459 12,833 10,394 11,370 15,293 11,448 30,000 12,554 18,791 30,000

Kuala Lumpur, Malaysia Hanoi, Vietnam Tangerang, Indonesia Kuala Lumpur, Malaysia Kuala Lumpur, Malaysia Johor Bahru, Malaysia Bekasi, Indonesia Ho Chi Minh, Vietnam Ho Chi Minh, Vietnam Phnom Penh City, Cambodia Kuching, Malaysia Da Nang, Vietnam Ho Chi Minh, Vietnam

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INVESTMENT RISKS Forex risks. PRAs 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 PRAs 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. Indonesias market is rather mature with the two big giants PT Ramayana Lestari Sentosa Tbk and PT Matahari Department Store Tbk dominating the scene. Its 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
In S$m Revenue Other income: -Finance income -Other income Chgs in merchandise inventories & consumables Employee benefits expense Depreciation & amortisation Promotional & advertising Rental expenses Finance costs Other expenses Total Expenses PBT Tax PAT MI PATMI Gross Profit EBIT EBITDA Margins Gross Profit EBIT EBITDA PBT PAT PATMI Tax % MI % of PAT Growth Revenue EBIT EBITDA PBT PAT PATMI Jun-09 301.2 1.8 3.2 (133.1) (29.8) (13.5) (5.4) (66.3) (0.1) (40.7) (288.8) 17.4 (5.3) 12.1 (0.7) 11.4 168.1 15.8 29.2 Jun-10 333.0 3.3 3.2 (140.4) (35.5) (15.5) (5.1) (67.1) (0.1) (43.4) (307.1) 32.5 (10.1) 22.4 (1.1) 21.4 192.5 29.2 44.7 Jun-11 367.3 4.9 5.8 (151.7) (34.8) (15.2) (7.2) (69.6) (0.5) (47.4) (326.4) 51.6 (15.8) 35.8 (0.8) 35.0 215.6 47.3 62.5 Jun-12F 474.0 4.3 4.3 (193.8) (44.6) (15.2) (9.0) (90.1) (0.2) (61.6) (414.5) 68.1 (21.1) 47.0 (1.1) 45.9 280.1 72.7 87.9 Jun-13F 564.7 5.1 4.5 (229.8) (51.4) (20.8) (10.7) (106.7) (0.2) (72.3) (492.0) 82.3 (25.5) 56.8 (1.4) 55.4 334.8 87.6 108.4 Jun-14F 681.7 6.7 4.7 (274.0) (61.3) (26.1) (13.0) (128.2) (0.2) (85.9) (588.6) 104.4 (32.4) 72.0 (1.7) 70.3 407.6 111.3 137.4

55.8% 5.2% 9.7% 5.8% 4.0% 3.8% -30.3% -5.8%

57.8% 8.8% 13.4% 9.8% 6.7% 6.4% -31.0% -4.8% 0.0% 10.5% 85.3% 53.0% 86.7% 84.9% 87.0%

58.7% 12.9% 17.0% 14.0% 9.8% 9.5% -30.6% -2.3% 0.0% 10.3% 61.6% 39.6% 58.8% 59.6% 63.8%

59.1% 15.3% 18.5% 14.4% 9.9% 9.7% -31.0% -2.4%

59.3% 15.5% 19.2% 14.6% 10.1% 9.8% -31.0% -2.4%

59.8% 16.3% 20.2% 15.3% 10.6% 10.3% -31.0% -2.4% 0.0% 20.7% 27.1% 26.7% 26.9% 26.9% 26.9% 26%

0.0% 0.0% 29.0% 19.1% 53.7% 20.6% 40.7% 23.4% 31.9% 20.9% 31.2% 20.9% 31.0% 20.9% FY11-14F earnings CAGR

Source: Company data and OSK|DMG estimates

Revenue can be broken down into four main categories: 1. 2. 3. 4. Direct sales Commissions from concessionaire sales Consultancy & management service fees Rental income

OSK Research See important disclosures at the end of this publication DMG Research OSK See important disclosures at the end of this publication DMG Research 18

Figure 20: Revenue Breakdown by Category

In S$m Revenue By Category 1) Direct Sales 2) Commissions from concessionaire sales 3) Consultancy & management service fees 4) Rental income Total Revenue % of revenue Direct Sales Commissions from concessionaire sales Consultancy & management service fees Rental income growth % Direct Sales Commissions from concessionaire sales Consultancy & management service fees Rental income Total revenue Jun-09 301.2 Jun-10 333.0 Jun-11 367.3 Jun-12F 474.0 Jun-13F 564.7 Jun-14F 681.7

162.6 126.3 0.5 11.8 301.2

169.2 149.6 0.9 13.2 333.0

180.6 169.5 1.4 15.9 367.3

233.4 221.5 1.6 17.5 474.0

279.1 264.5 1.7 19.4 564.7

347.0 311.0 1.9 21.7 681.7

54% 42% 0% 4%

51% 45% 0% 4%

49% 46% 0% 4%

49% 47% 0% 4%

49% 47% 0% 3%

51% 46% 0% 3%

0% 0% 0% 0% 0%

4% 18% 85% 12% 11%

7% 13% 53% 20% 10%

29% 31% 10% 10% 29%

20% 19% 10% 11% 19%

24% 18% 10% 12% 21%

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
In S$m 400 347.0 350 311.0 300 250 200 162.6 150 100 50 0 Jun-09 Jun-10 Jun-11 Jun-12F Jun-13F Jun-14F 126.3 169.2 149.6 180.6 169.5 233.4 221.5 279.1 264.5 Direct sales Commission from concessionaire sales

Source: Company data

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 of operations and S$26.4m in FY14.

OSK Research See important disclosures at the end of this publication DMG Research OSK See important disclosures at the end of this publication DMG Research 19

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$0.5m as a result of the opening of one new managed store in Ho Chi Minh City in January 2011. Figure 22: Consultancy & management service fee
S$m 2.0 1.9 1.8 1.7 1.6 1.4 1.2 1.0 0.8 0.6 0.5 0.4 Jun-09 Jun-10 Jun-11 Jun-12F Jun-13F Jun-14F 0.9 1.4 1.6 Consultancy & management service fees

Figure 23: Rental income

S$m 24 22 20 18 16 14 13.2 12 10 Jun-09 Jun-10 Jun-11 Jun-12F Jun-13F Jun-14F 11.8 15.9 17.5 21.7 19.4 Rental income

Source: Bloomberg

Source: Bloomberg

Figure 24: Breakdown of FY11 operating expenses

Other expenses, 15% Finance costs, 0%

Chgs in merchandise inventories & consumables, 46%

Rental expenses, 21%

Promotional & advertising, 2% Depreciation & amortisation, 5%

Employee benef its expense, 11%

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.

OSK Research See important disclosures at the end of this publication DMG Research OSK See important disclosures at the end of this publication DMG Research 20

Figure 25: % Operating expenses to revenue

In S$m Operating Expenses: Chgs in merchandise inventories & consumables Employee benefits expense Depreciation & amortisation Promotional & advertising Rental expenses Finance costs Other expenses Total Operating Expenses Revenue % total opex/ revenue
Source: Company data

Jun-09 (133.1) (29.8) (13.5) (5.4) (66.3) (0.1) (40.7) (288.8) 301.2 -96%

Jun-10 (140.4) (35.5) (15.5) (5.1) (67.1) (0.1) (43.4) (307.1) 333.0 -92%

Jun-11 (151.7) (34.8) (15.2) (7.2) (69.6) (0.5) (47.4) (326.4) 367.3 -89%

Jun-12F (193.8) (44.6) (15.2) (9.0) (90.1) (0.2) (61.6) (414.5) 474.0 -87%

Jun-13F (229.8) (51.4) (20.8) (10.7) (106.7) (0.2) (72.3) (492.0) 564.7 -87%

Jun-14F (274.0) (61.3) (26.1) (13.0) (128.2) (0.2) (85.9) (588.6) 681.7 -86%

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

Gross Profit 70% 60% 50% 40% 30% 20% 10% 0% Jun-09 Jun-10 Jun-11 3.8% 6.4% 9.5% 55.8% 57.8% 58.7%

PATMI 59.1% 59.3% 59.8%

9.7%

9.8%

10.3%

Jun-12F

Jun-13F

Jun-14F

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.

OSK Research See important disclosures at the end of this publication DMG Research OSK See important disclosures at the end of this publication DMG Research 21

VALUATION NEUTRAL with FV of S$1.50. We have a DCF-derived TP of S$1.50 (WACC: 9.2%, terminal growth rate 2%) which implies a FY13 P/E of 18x, in line with its Southeast Asian peers in the department store space. Its closest rival in Malaysia, AEON which owns the chain of Jusco department stores is trading at a lower forward consensus P/E of 13x. We think the premium valuation for PRA over AEON is justified given that it offers investors a unique proposition by providing exposure into three high growth markets: 1) Malaysia, 2) Vietnam and 3) Indonesia. Furthermore it operates on an asset light strategy, leasing all of its retail space except for one site in Vietnam. Over the past year, its HK-listed sister company, Parkson Retail Group (3368 HK), which operates 49 stores in China has traded at an average P/E of 23x while its Malaysian-listed parent company, Parkson Holdings (PKS MK) traded at 18x. Figure 27: DCF-derived TP Total PV Cash Debt Fair value (S$m) No of shares (m) Value per share (S$) WACC ( r )
Source: OSK|DMG estimates

907 108.4 1.0 1,014 677 1.50 9.2%

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$1.52, it is up ~62% from its IPO price. Figure 28: Share price performance since IPO
Price - S$
1.60

+62% from IPO price of S$0.94

1.50

1.40

1.30

1.20

1.10

1.00 4-Nov-11

18-Nov-11

2-Dec-11

16-Dec-11

30-Dec-11

13-Jan-12

27-Jan-12

Source: Bloomberg

OSK Research See important disclosures at the end of this publication DMG Research OSK See important disclosures at the end of this publication DMG Research 22

Figure 29: PRA SP P/E Trading Band

27.0

26.0

25.0

+1SD: 24x
24.0

23.0

Mean: 22x
22.0

21.0

-1SD: 20x
20.0

19.0 3-Nov-11 17-Nov-11 1-Dec-11 15-Dec-11 29-Dec-11 12-Jan-12 26-Jan-12 9-Feb-12

Source: Bloomberg

Figure 30: Sister 3368HK P/E Trading Band

45.0

40.0

35.0

+1SD: 35x

30.0

Mean: 28x

25.0

-1SD: 22x
20.0

15.0 30-Sep-08
Source: Bloomberg

31-Mar-09

30-Sep-09

31-Mar-10

30-Sep-10

31-Mar-11

30-Sep-11

OSK Research See important disclosures at the end of this publication DMG Research OSK See important disclosures at the end of this publication DMG Research 23

Figure 31: PKS MK P/E Trading Band

40.0

35.0

30.0

25.0

20.0

+1SD: 18x

15.0

Mean: 11x
10.0

5.0

-1SD: 4x
29-Jun-01
Source: Bloomberg

29-Jun-03

29-Jun-05

29-Jun-07

29-Jun-09

29-Jun-11

PRAs 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 OSK|DMG Revenue Consensus as at 9Feb12 variance % OSK|DMG PATMI Consensus as at 9Feb12 variance %
Source: Company data

FY13 564.7 528.3 7% 55.4 57.5 -4%

FY14 681.7 609.3 12% 70.3 70.0 0%

474.0 454.5 4% 45.9 46.9 -2%

OSK Research See important disclosures at the end of this publication DMG Research OSK See important disclosures at the end of this publication DMG Research 24

Figure 33: Peer Comparison

STOCK Bloomberg Ticker Price 9-Feb-12 1.52 7.65 5,650.00 800.00 43.00 P/E (x) Yr 1 Yr2 22.5 15.6 28.3 14.2 30.5 22.1 18.6 13.7 21.6 12.3 24.4 18.0 P/B (x) Yr 1 Yr2 6.8 2.2 5.6 2.0 5.7 3.9 5.6 2.2 5.3 2.0 5.3 3.7 EV/EBITDA Yr 1 Yr2 11.4 6.1 11.9 6.6 16.2 10.2 9.4 5.4 9.8 5.9 13.0 8.5 ROE (%) Yr 1 Yr2 30.4 15.7 14.6 13.8 23.3 16.8 30.0 14.8 21.8 15.2 20.3 18.0 Net D/E (x) Yield (%) FY12 FY12 (71.2) (29.4) 48.1 (40.5) (43.1) (16.2) 2.0 2.1 0.4 3.8 1.4 1.9

Southeast Asia department stores PARKSON RETAIL ASIA LTD pra sp equity AEON CO (M) BHD aeon mk equity MITRA ADIPERKASA TBK PT mapi ij equity RAMAYANA LESTARI SENTOSA PT rals ij equity ROBINSON DEPARTMENT STORE PU robins tb equity Industry Average (ex-PRA) Southeast Asia supermarkets DAIRY FARM INTL HLDGS LTD SHENG SIONG GROUP LTD SUMBER ALFARIA TRIJAYA TBK P CP ALL PCL BIG C SUPERCENTER PCL SIAM MAKRO PUBLIC CO LTD Industry Average Hong Kong department stores PARKSON RETAIL GROUP LTD GOLDEN EAGLE RETAIL GROUP LIFESTYLE INTL HLDGS LTD INTIME DEPARTMENT STORE SPRINGLAND INTERNATIONAL HOL MAOYE INTERNATIONAL HLDGS NEW WORLD DEPT STORE CHINA PCD STORES GROUP LTD Industry Average United States Department Stores MACY'S INC J.C. PENNEY CO INC SAKS INC KOHLS CORP Industry Average Australia Department Stores DAVID JONES LTD MYER HOLDINGS LTD Industry Average

dfi sp equity ssg sp equity amrt ij equity cpall tb equity bigc tb equity makro tb equity

9.91 0.50 4,000.00 58.00 122.00 259.00

28.3 17.1 37.1 32.2 25.3 25.1 27.5

25.9 17.7 27.7 26.4 22.2 19.6 23.2

16.8 10.4 10.3 13.1 4.6 6.6 10.3

14.4 5.0 10.7 12.8 4.4 6.4 8.9

18.2 15.7 14.6 17.1 12.3 13.3 15.2

16.6 13.5 11.4 14.7 10.9 11.7 13.1

65.4 48.0 25.9 36.5 14.7 21.0 35.2

51.3 29.0 32.0 45.2 17.1 31.1 34.3

(28.2) (99.5) 38.5 (112.2) (25.1) (42.9) (44.9)

1.9 Na Na 1.7 1.6 3.4 2.2

3368 hk equity 3308 hk equity 1212 hk equity 1833 hk equity 1700 hk equity 848 hk equity 825 hk equity 331 hk equity

10.06 18.20 17.96 9.24 4.86 1.89 4.86 1.29

19.9 23.7 18.2 18.2 17.2 12.9 12.8 11.0 16.7

17.2 19.1 15.8 14.4 14.1 9.3 10.5 8.9 13.6

4.4 7.1 3.9 2.5 2.6 1.5 1.5 1.8 3.2

4.4 6.4 3.6 2.4 2.4 1.6 1.4 1.7 3.0

11.4 15.5 13.4 14.9 9.7 8.7 3.5 6.2 10.4

9.9 12.3 11.5 11.9 7.9 6.4 2.9 4.7 8.4

23.5 29.1 21.1 15.6 15.5 15.8 16.5 15.2 19.0

24.3 30.5 21.4 15.8 16.1 16.2 12.7 19.0 19.5

(50.7) (47.9) (14.5) 26.2 (38.0) 45.4 (74.5) (12.9) (20.9)

2.0 1.0 2.1 2.0 2.3 Na 3.3 3.5 2.3

m us equity jcp us equity sks us equity kss us equity

35.86 42.35 10.88 50.14

12.8 34.9 28.4 11.7 21.9

10.9 23.6 22.2 10.2 16.7

2.6 2.0 1.5 2.0 2.0

2.5 2.2 1.7 2.0 2.1

6.0 9.6 7.6 5.5 7.2

5.8 8.1 6.8 5.3 6.5

16.6 7.6 4.3 14.5 10.8

20.9 8.9 7.1 18.0 13.7

107.8 8.7 26.5 21.9 41.2

1.0 1.9 Na 2.0 1.6

djs au equity myr au equity

2.52 2.06

9.5 8.7 9.1 19.5

9.2 8.3 8.7 16.1

1.6 1.4 1.5 4.2

1.7 1.4 1.5 3.9

5.7 5.0 5.3 9.7

5.4 4.8 5.1 8.3

22.0 18.7 20.3 20.4

18.2 17.2 17.7 20.6

15.3 44.4 29.8 (2.2)

15.9 15.6 15.7 4.7

Global Average Source: Bloomberg and OSK|DMG estimates

OSK Research See important disclosures at the end of this publication DMG Research OSK See important disclosures at the end of this publication DMG Research 25

APPENDIX 1: DEPARTMENT STORE INDUSTRY OUTLOOK - MALAYSIA Malaysias Economy s Malaysian economy grew at a CAGR of 17.2% from 2005 to 2008 prior to the global 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% 2011-2015, and 6.4% respectively to reach US$331b and US$10,774 respectively in 2 2015 s Malaysias Department Store Industry The Malaysian department store retail market enjoyed robust double double-digit growth of 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 but rebounded in 2010 with a 10.7% growth Between 20 2005-2010, grew at a CAGR of 12.1% The industry was valued at US$2.5b in 2010 and is projected to grow at a CAGR of 4.5% between 2011 to 2015 PRA ranks number two in terms of retail value sales in 2010 Have forecasted SSSG of 7% annually for FY12 FY12-FY14. Figure 34: GDP and GDP per capita (2005 (2005-2015) Figure 35: Consumption expenditure & consumer expenditure per capita (2005 (2005-2015)

Source: Euromonitor International 2011

Source: Euromonitor International 2011

Figure 36: Market Share AEON Co (M) Bhd 2% 3% 3% 3% 3% 7% 43% The Store Corp Bhd Isetan (M) Sdn Bhd 17% Milimewa Superstore Sdn Bhd 19% Robinson & Co Ltd Parkson Corp Sdn Bhd

Source: Euromonitor International 2011 * sales for Parkson includes only non food sales product sales while others likely to include a OSK Researchnon non-food mix of food and nonfood products See important disclosures at the end of this publication

DMG Research OSK See important disclosures at the end of this publication DMG Research

26

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 Parksons 19.2%. Its other rival, The Store which owns the Millimewa and The Store chain, has the most number of outlets in Malaysia but saw its market share declined by 0.8% in 2010. The Store however isnt a direct competitor as it targets a different target market than Parkson, serving the low to middle inc income consumers. Figure 37: Number of outlets of top players 60 515151 51 50 2008 40 3636 32 23 2121 20 171717 2009 2010

30

32 2828

10

777

555

333

222
Suiwah Corp Bhd Others

0
The Store Corp Bhd Parkson Corp Sdn Bhd AEON Co Milimewa Metrojaya Robinson & Isetan (M) (M) Bhd Superstore Co Ltd Sdn Bhd Sdn Bhd

Source: Company data

In terms of number of outlets in Malaysia, Parkson ranks number two. Figure 38: Selling space of top players Selling space ('000 sm) 400 353 337 350 319 315 309 309 300 259 259 259 250 200 155 150 103 103 103 100 50 0
AEON Co (M) Bhd Parkson Corp Sdn Bhd The Store Corp Bhd Milimewa Superstore Sdn Bhd Metrojaya Isetan (M) Robinson & Suiwah Corp Sdn Bhd Co Ltd Bhd Others

2008

2009

2010

83

84

84 4343 43 181818 141818

100 86

Source: Company data

OSK Research DMG Research OSK 27

See important disclosures at the end of this publication See important disclosures at the end of this publication DMG Research

APPENDIX 2: DEPARTMENT STORE INDUSTRY OUTLOOK - VIETNAM : Vietnams 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 Vietnams Department Store Industry Vietnams department store retail sales value grew by a CAGR of 22.5% between 2005 and 2008 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 9.1% between 2011 to 2015 Have forecasted SSSG of 9% for FY12 FY12-14 Figure 39: GDP and GDP per capita (2005 (2005-2015) Figure 40: Consumption expenditure & consumer expenditure per capita (2005 (2005-2015)

Source: Euromonitor International 2011

Source: Euromonitor International 2011

Figure 41: 2010 Market Share

Parkson Corporation 34% 37% International Business Center Corp Hasegawa Vietnam Co Trang Tien Plaza Co Ltd 3% 6% 20% Others

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 nonfood products

OSK Research See important disclosures at the end of this publication DMG Research OSK See important disclosures at the end of this publication DMG Research 28

Figure 42: Number of outlets of top players 30 26 25 2008 20 2009 2010 23 24

15

10 5 5 1 0 Parkson Corporation International Hasegawa Vietnam Trang Tien Plaza Business Center Co Co Ltd Corp Others 1 1 1 1 1 1 1 1 6 6

Source: Company data

Figure 43: Selling space of top players Selling space ('000 sm) 200 183 180 160 140 120 100 80 60 40 20 0
Parkson Corporation Source: Company data International Business Hasegawa Vietnam Co Trang Tien Plaza Co Ltd Center Corp Others

2008

2009

2010 150 154

111 111 86

12 12 12

OSK Research See important disclosures at the end of this publication DMG Research OSK See important disclosures at the end of this publication DMG Research 29

APPENDIX 3: DEPARTMENT STORE INDUSTRY OUTLOOK - INDONESIA Indonesias Economy Between 2005 to 2008, Indonesias 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 capita grew at 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 11.0% and 10.0% respectively between 2011 and 2015 Indonesias Department Store Industry s Retail 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 FY12-14. still new to the market Figure 44: GDP and GDP per capita (2005-2015) Figure 45: Consumption expenditure & consumer expenditure per capita (2005 (2005-2015)

Source: Euromonitor International 2011

Source: Euromonitor International 2011

Figure 46: Retail value sales market share of departmental store players
PT Matahari Department Store Tbk PT Ramayana Lestari Sentosa Tbk PT Mitra Adiperkasa Tbk

22.90% 32.70% 0.20% 0.40% 0.40% 2.50% 2.30% 4.60% 10.90% 23.20%

PT Akur Pratama PT Metropolitan Retailmart PT Tozy Sentosa PT Sarinah (Persero) PT Golden Retailindo Tbk PT Rimo Surabaya Lestari Tbk Others

Source: Euromonitor International 2011 OSK Research * Sales for Parkson include only disclosures at the end of this publication likely to include a mix of food and non non-food nonSee important non food sales product sales while others food products 30 DMG Research OSK

See important disclosures at the end of this publication DMG Research

Dominated by two giants Indonesias department store retail market is dominated by two giants. giants 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 position (32.7% market share in 2010). It plans to open 150 new stores within a 10 10-15 year period. Its New Generation stores targets the middle and high income consumers while Parksons recently acquired Centro department stores target the middle income. PRAs stores held a 2.5% share of retail sales in 2010. Four out of the five are located on Java Island while one is at Kuta Bali. sland Figure 47: Number of outlets of top players
350

315308
300

2008
250

2009

2010

299

200

150

100

102 110 101 88 98 84 54 54 52

50

17 17 18 12 68
PT Ramayana PT Matahari Department Lestari Sentosa Tbk Store Tbk PT Akur Pratama PT Mitra Adiperkasa Tbk PT Sarinah (Persero)

555
PT Tozy Sentosa

444

732

222
PT Golden Retailindo Tbk Others

0
PT Rimo PT Metropolitan Surabaya Retailmart Lestari Tbk

Source: Euromonitor International 2011

Figure 48: Selling space of top players Selling space ('000sqm)

1200

1000

2008
800

2009

2010

978 927 892

600

566 512 525

491 441 425 224 210 210 156 156 156 49 4949 66 33 44 404040
PT Tozy Sentosa

400

200

111111

23 9 5
Others

0
PT PT Matahari PT Mitra Ramayana Department Adiperkasa Lestari Store Tbk Tbk Sentosa Tbk PT Akur PT PT Sarinah Pratama Metropolitan (Persero) Retailmart PT Golden PT Rimo Retailindo Surabaya Tbk Lestari Tbk

Source: Euromonitor International 2011

OSK Research See important disclosures at the end of this publication DMG Research OSK See important disclosures at the end of this publication DMG Research 31

APPENDIX 4: MANAGEMENT PROFILE Figure 49: Management Profile

Management Datuk Cheng Yoong Choong Group Managing Director Role Been with the Group since 1987 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 Also President Director of Indonesian 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 Been with Group since 1987 Responsible for establishing Group's operations in Vietnam Prior to PRA, was with retail group Emporium in Malaysia from 1975-1987

Mr Toh Peng Koon CEO of Malaysian operations

Mr Tham Tuck Choy CEO of Vietnamese & Cambodian operations

Source: Company data

OSK Research See important disclosures at the end of this publication DMG Research OSK See important disclosures at the end of this publication DMG Research 32

FINANCIAL TABLES
Profit & Loss Statement FYE Jun (S$m) Revenue COGS Gross Profit Other incom e: -Finance incom e -Other incom e Operating Expens es : Em ployee benefits expens e Depreciation & am ortis ation Prom otional & advertis ing Rental expens es Finance cos ts Other expens es Total Expens es PBT Tax PAT MI PATMI EBIT EBITDA FY10 333 (140) 193 FY11 367 (152) 216 FY12F 474 (194) 280 FY13F 565 (230) 335 FY14F 682 (274) 408

3 3

5 6

4 4

5 5

7 5

(35) (15) (5) (67) (0) (43) (167) 33 (10) 22 (1) 21 29 45

(35) (15) (7) (70) (1) (47) (175) 52 (16) 36 (1) 35 47 62

(45) (15) (9) (90) (0) (62) (221) 68 (21) 47 (1) 46 73 88

(51) (21) (11) (107) (0) (72) (262) 82 (26) 57 (1) 55 88 108

(61) (26) (13) (128) (0) (86) (315) 104 (32) 72 (2) 70 111 137

Balance Sheet FYE Jun (S$m) Cas h and cas h equivalents Trade and other receivables Inventories Others Current assets Property, plant and equipm ent Intangible as s ets Others Non-current assets Total assets Trade and other payables ST Borrowings Others Current liabilities LT Borrowings Deferred tax Others Non-current liabiilities Total liabilities Share capital Res erves Retained profits Shareholder's Equity MI Total equity

FY10 127 18 47 0 192 74 0 28 101 294 125 0 21 146 0 1 4 5 151 21 1 118 140 3 143

FY11 96 24 52 1 173 70 7 36 113 286 125 1 29 154 0 0 5 5 159 159 -133 97 123 4 127

FY12F 108 31 67 1 208 96 6 40 143 350 160 1 30 191 0 0 5 5 196 159 -131 122 151 4 154

FY13F 127 37 79 1 245 120 6 44 170 415 190 1 32 223 0 0 5 5 228 159 -128 153 184 4 188

FY14F 167 45 95 1 308 134 6 48 188 496 226 1 33 260 0 0 5 5 265 159 -124 191 227 4 230

Cash Flow FYE Jun (S$m) PBT Depreciation & non Cas h Adj Change in working capital Interes t incom e Interes t expens e Tax CFO Capex Other Inves ting CF CFI Dividends Other Financing CF CFF Free cas h flow

FY10 33 20 20 3 0 -8 67 -26 0 -26 0 1 1 41

FY11 52 14 2 4 0 -16 55 -10 3 -6 -56 -15 -71 46

FY12F 68 11 13 4 0 -21 75 -41 0 -41 -21 0 -21 34

FY13F 82 16 11 5 0 -26 89 -45 0 -45 -25 0 -25 44

FY14F 104 20 14 7 0 -32 112 -40 0 -40 -32 0 -32 72

Source: Company data and DMG estimates

OSK Research See important disclosures at the end of this publication DMG Research OSK See important disclosures at the end of this publication DMG Research 33

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 DMG & Partners Research Pte. Ltd. (Reg. No. 200808705N) Kuala Lumpur
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OSK Research DMG Research OSK 34

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