- We reaffirm our HOLD recommendation on Padini Holdings (PAD) with an unchanged fair value of RM1.80/share, pegged to a 12x PE over FY15F earnings – one standard deviation above its 5-year historical mean.
- Padini reported a 31% YoY decline for its 1QFY15 core earnings, at RM19mil.
- Nevertheless, we deem the results to be largely within expectations (20% our estimates) and maintain our FY15F net profit of RM97mil, as we expect a pick-up in sales momentum, underpinned by festivities.
- A second interim dividend of 2.5sen was declared, bringing total dividends to 5.0sen to-date.
- While revenue continued to grow by 4% YoY and 16% QoQ, the main drag on earnings came from the greater promotional activities to boost sales, which resulted in a gross profit margin compression of 1.8ppts to 45.3%.
- Brands Outlet continued to do well as indicated by the robust 23% YoY revenue growth. More importantly, the Brands Outlet’s concept bodes well for the group amid the current challenging retail outlook underpinned by an expected slowdown in discretionary spending.
- Brands Outlet has now emerge as the growth engine for the group, constituting 34% of revenue and yields the highest PBT margin of 16%.
- Store expansion plans remained favorable with eight new stores planned (4 Brands Outlets and 4 Concept Stores) for FY15F. Thus far, we understand that five new stores have opened.
- Key risks to our earnings forecast are further margin compression to boost sales and slower-than-expected retail sales.
- The stock is currently trading at a forward PE of 12x, above its 5-year historical mean trend of 11x.
Source: AmeSecurities
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