Result

• Padini reported net profit of RM54.5mil for its 2QFY17. The quarterly earnings surged 90.4% q-o-q and jumped 64.7% y-o-y on the back of rising revenue, +37.6% q-o-q and 25.3% y-o-y.

• For cumulative 6MFY17, the net profit of RM83.1mil was 28% higher than a year ago amid revenue grew 20.8%.

• Broadly in line with seasonally stronger 1HFY17. The Group’s 6MFY17 earnings were within our and consensus expectations accounted for 57% and 55% of our and consensus full year estimates as the Group’s earnings were traditionally higher in the first half of its financial year buoyed by year-end sales and special sales promotion as well as Christmas celebration.

Comment

• Topline growth attributed by positive performance from both Brands Outlet and Padini Concept Stores. The Group’s 6MFY17 topline improved from the previous year mainly on the robust performance of Brands Outlet (BO) and Padini Concept Stores (PCS) coupled with the 8 Brands Outlet stores and 5 Padini Concept Stores which were opened after 2QFY16, managed to offset higher selling and contribution costs. The inspiring performance of Brands Outlet was attributable to the Group’s strategy to market fashionable yet value-for-money items to consumers amid rising living cost.
   
• Seasonal factor boost the sales. On qoq basis, the Group’s 2QFY17 net profit was higher in topline as well as its bottomline. As expected, the Group managed to maintain its resilient performance for this quarter in conjunction with Christmas celebration in December and year-end sales. The bottomline stood at RM54.5mil in 2QFY17, jumped by 90.4% q-o-q and 64.7% y-o-y. Meanwhile, the gross profit margin also increased 1.91ppts yoy as there were less mark downs during the quarter.
   
• Steady growth expected in next quarter. Looking forward, we expect the Group’s coming quarter results to be resilient which underpinned by festive seasons particularly on Chinese New Year’s Eve. The Group is confident in chalking up another profitable financial year as the first half of financial year has shown good results despite unstable Ringgit, rising costs of goods and operations, coupled with the current economic uncertainty.

• Dividend declared. The Group has declared a third interim dividend of 2.5 sen per share for FY17, payable on March 27. We expect the Group to maintain dividend payout of 10 sen per share in FY17, which would translate into decent dividend yield of 3.9% based on latest closing price.

Earnings Outlook/Revision

• We maintain our earnings forecast for FY17-18F. 

Valuation & Recommendation

• Maintain BUY with an unchanged target price of RM3.09. We pegged our stock valuation at 14x FY2017F EPS which is +2 standard deviation above its mean PER as we feel sanguine on the outlook of the Group.

• Despite the headwinds faced by the Group under current economic situation and rising costs of living coupled with unstable Ringgit, we remain positive on the Group’s marketing efforts to continue on providing value for money merchandise, and its strategic pricing and promotional activities. We believe the Group is able to overcome all of the challenges judging from its proven track record.

Source: JF Apex Securities Research - 21 Feb 2017