Investment Highlights

• We maintain our UNDERWEIGHT recommendation on Padini Holdings with a lower FV of RM3.42 (vs. RM4.72 previously) based on a PE of 15x FY20F EPS. We have cut our earnings forecast for FY19F, FY20F and FY21F by 24.3%, 27.5% and 26.2% respectively to reflect a lower sales growth estimate and EBITDA margins.

• Padini’s 1HFY19 net profit dropped 12.4% to RM71.1mil and missed our and consensus expectations, accounting for only 43% and 46% of full-year forecasts respectively. The variance against our forecast came largely from lowerthan-expected sales growth and EBITDA margin.

• An interim dividend of 2.5 sen/share was announced.

• Key highlights of Padini’s 2QFY19 results included:

o Comparing 2QFY19 against 1QFY19, revenue surged 40.3% to RM462.6mil. This was mainly attributed to the Christmas season, year-end school holidays and the nationwide 5-day special sales promotion. The growth was also due to a seasonally weaker 1Q.

o 1HFY19 topline grew 2.2% to RM792.4mil (vs. RM775.6mil previously). This was mainly due to sales generated from four new stores that were opened in 4QFY19. On the other hand, EBITDA dropped 6.4% YoY to RM121.3mil from RM129.5mil in 1HFY18 while EBITDA margin fell 1.4ppt to 15.3% (16.7% previously). This was due to a rise in staff cost, rental as well as store operating expenses.

o We believe the domestic outlook remains unexciting as it has reached saturation as seen in the 2% SSSG decline in FY18. We believe that sales growth is largely tied to the consumer sentiment. As shown in Exhibit 2, the consumer sentiment has weakened in 4QCY18 to below the 100 threshold to 96.8. After taking the dampened consumer confidence in consideration, we now anticipate SSSG for FY19F and FY20F to be slightly negative.

Source: AmInvest Research - 28 Feb 2019