• Padini’s 4QFY18 core profit grew 41% qoq to RM60.6m driving FY18 core profit (+0.2% yoy) to RM189m. Core profit FY18 was inline with our forecast at 101%, but above consensus at 109%.

• Revenue for FY18 increased 6.9% to RM1.7bn. Growth was due to positive sales from both existing and new stores.

• A first interim dividend of 2.5sen was declared for FY19, payable in Sep 2018, similar to the amount declared last year.

• Maintain Hold with new DCF-derived TP of RM6.20 with terminal growth rate of 1%.

Driven by higher sales

Padini’s FY18 revenue increased 6.9% to RM1.7bn. This is due to positive growth from existing stores and new stores opened (5 PCS, 7 BO) during the year. However, FY18 core net profit rose marginally by 0.2% to RM189m due to unrealized exchange rate translations as the company does not use foreign exchange derivative instrument to hedge its transaction risk. Reported headline net profit is up +13% yoy.

Strong performance qoq basis

On qoq basis, 4QFY18 revenue and core earnings rose 12.4% and 40.4% respectively due to a strong Hari Raya sales and 4 days special promotion held in the current quarter under review. We believe that zero-rated GST between end-May and Aug 2018 period had a positive impact on sales volume. Pre-tax pofit margin rose to 16.9% from 11.8% a year ago, whilst the company stayed in a healthy net cash position.

Dividend declared unchanged vs previous year

Padini declared a first interim DPS of 2.5sen (1Q18:2.5sen). We expect full year DPS of 13sen, translating into dividend yield of 2.2%.

Outlook remains positive

We remain positive on Padini’s earnings outlook backed by its sound management, value-for-money market positioning and gradual recovery in consumer sentiment due to increasing purchasing power on the back of GST abolishment. We believe although consumers are gradually moving away from physical store shopping, the company’s increasing effort in establishing its online store will enable Padini to sustain not just domestically but also internationally.

Maintain Hold with new TP of RM6.20

No adjustment is made to our earnings forecast. We retain our hold recommendation with a new DCF-derived TP of RM6.20. We adjusted the terminal growth rate to 1% from 0%, as we believe that its business model, branding and market positioning is likely to sustain.

Source: BIMB Securities Research - 28 Aug 2018