Investment Highlights

• We upgrade our recommendation for Padini Holdings to HOLD from UNDERWEIGHT with a higher FV of RM3.75/share after rolling forward our valuation period to CY20F.

• Our FV is based on a P/E of 15x, which is Padini’s average 5-year historical P/E multiple.

• We have increased our earnings forecast for FY20F and FY21F by 4.8% and 0.8% respectively to account for higher sales.

• Padini’s FY19 net profit of RM160.2mil (-10.1% YoY) was above both our and street’s estimates, accounting for 111% and 107% of full-year forecasts respectively.

• An interim dividend of 4.0 sen/share was announced bringing FY19 DPS to 11.5 sen/share (11.5 sen/share in FY18).

• Comparing 4QFY19 with 3QFY19, revenue of RM516.5mil grew 8.9% on the back of better sales in existing stores and lifted by the Hari Raya festive season.

• EBITDA expanded 46.4% QoQ to RM84.9mil in 4QFY19 as EBITDA margin improved by 4.2ppts to 16.4%. In 3QFY19, Padini’s EBITDA was affected by bonus and incentive payouts.

• FY19 revenue of RM1,783.0mil climbed 6.2% on the back of better sales as reflected in the SSSG of 4%. Gross profit improved marginally by 1.5% YoY to RM697.8mil.

• However, gross margin slipped 1.8ppts to 39.1% in FY19 in the absence of reversal of inventories write-offs which amounted to RM23.2mil in FY18.

• Moving forward, we anticipate FY20F to be challenging due to the full-year impact of the SST (sales and service tax) implementation and unexciting domestic outlook.

Source: AmInvest Research - 28 Aug 2019