• Padini’s 3QFY19 core profit declined 35% qoq and 17% yoy to RM36m attributed to higher operation costs and marginal increase in sales. Overall 9MFY19 earnings were above our estimate at 100% but in-line with consensus at 74%.

• Revenue for the quarter was +2.5% qoq and +11.5% yoy to RM474, coming from positive sales from both existing and 4 new stores opened during 4Q18.

• A fourth interim and special dividend of 2.5sen and 1.5 sen was declared, bringing total DPS in FY19 to 11.5sen (vs FY18: 11.5sen).

• We revised our FY19F – FY21F earnings higher by 33%-24% to factor in lower operating costs. Maintain Buy with new DCF-derived TP of RM5.20 with WACC of 6.4%.

9 months earnings were above our expectation

Padini’s 9MFY19 revenue increased 5.5% to RM1,267m attributed to positive growth from existing stores and with 4 new ones opened during the 4QFY18. However, 9MFY19 net profit decreased by 14% yoy due to a poor performance in the first quarter. Padini’s EBITDA margin eroded by 1.47 ppts, which was attributable to higher staff costs, rentals and stores operations. Overall, the 9 months performance exceeded our expectation.

Lower net profit growth for 3Q

On qoq basis, 3QFY19 core earnings declined by 35% respectively partly due to bonus payout in current quarter under review. The lower profit can also be explained by higher staff costs, rentals and stores operation, which resulted in EBITDA margin declining by 5.9% qoq to 12.5%. Recall that Padini recorded a surprisingly low net profit of RM18m for 1Q.

Dividend declared unchanged vs previous year

It declared a 4th interim DPS of 2.5sen and special DPS of 1.5sen. This brings the total DPS declared for FY19 to 11.5sen (vs FY18: 11.5sen), translating to 2.9% dividend yield.

Moderate outlook

We remain positive on Padini’s outlook as the company managed to shrug off its issues in 2QFY19 with rising costs which resulted in a slump its 1QFY19 profit. The weaker 3QFY19 profits are from cost pressures due to bonus payout made on the quarter – yet sales were on positive growth. On the risk side, its new store openings and cost to retain market share could exert pressure on margins. However, Padini has a diversified brand names that appeal to customers, in our view. We expect more stable earnings for the upcoming quarters due to festive-related buying of Hari Raya in 4QFY19.

Source: BIMB Securities Research - 29 May 2019