• Padini’s 3QFY17 earnings fell 36.1% yoy and 0.9% yoy but was up 18% for the 9M17 period to be broadly inline with our forecasts at 71% albeit ahead of consensus at 77%.

• The weaker 3QFY17 earnings was expected as sales impact from of CNY sales spilled over into 2QFY17 while marketing expenses also came in higher in 3Q.

• A 4th interim and special dividend of 2.5 sen and 1.5 sen was declared, bringing total DPS in FY17 to 11. 5sen.

• Maintain BUY with a DCF-derived TP of RM4.50. We expect earnings to rebound in 4QFY17 in view of seasonal factors while we remain positive over Padini’s medium term outlook.

Driven by higher sales from all Padini segments

Padini performed strongly in 9MFY17 with net profit growing 17.9% to RM117.9m. The commendable performance was due to positive growth form existing stores and new stores opened (5 PCS, 7 BO and 1 fee standing store) since 3QFY16. All Padini segments posted double-digit revenue growths over 9MFY17. Meanwhile, Seed and Vincci registered strong PBT growth of 20.8% and >100% YTD each following the business restructuring exercise carried out.

Growth affected by higher costs

On yoy basis, 3QFY17 revenue grew 9.2% due to higher sales from existing and new store openings. However, EBIT declined marginally by 1.4% while margin contracted 0.7ppts to12.2% on higher opex.

Poor performance qoq basis

On qoq basis, 3QFY17 revenue and earnings fell 12.4% and 36.1% respectively due largely to a strong 2QFY17. To recap, 2Q17 not only benefited from the strong seasonal sales from Christmas and year end school holidays but was also boosted by pre-CNY sales. The CNY celebration in FY17 was in late Jan instead of early Feb in FY16.

Dividend declared

Padini declared a 4th interim dividend of 2.5sen and special dividend of 1.5sen. This brings the total dividend declared in FY17 to 11.5sen translating to 3.5% yield.

Maintain BUY

Maintain BUY with TP RM4.50 based on DCF methodology (WACC: 6.8% and LT growth: 0%). At our TP, this implies FY17F PE of 17.8x before easing to 15.7x in FY18F. We are upbeat on Padini’s 4QFY17 performance ahead of the Hari Raya festivities, Padini 4-day sale and mid-year sale. Padini continues to command strong fundamentals, reflected in its stable FCF generation, robust ROE returns and strong balance sheet. As of 9M17, net cash per share stands at 25sen.

Source: BIMB Securities Research - 31 May 2017