Result

• Padini reported a net profit of RM34.8mil for its 3QFY17. The quarterly net earnings declined 36.1% q-o-q and slightly lower by 0.9% y-o-y. Meanwhile, revenue was stood at RM373.74mil, declining 12.4% q-o-q while rising9.2% y-o-y.

• For cumulative 9MFY17, the net profit of RM117.9mil was 17.9% higher than a year ago amid revenue grew by 16.6%.

• Above our expectation. The Group’s 9MFY17 earnings were above our expectation which accounted for 81.3% of our full year earnings but within consensus expectations at 76.3%. The better-than-expected results were mainly due to commendable sales for the new stores opened during the period.

Comment

• 9MFY17 performance backed by outlet expansion. The Group’s 9MFY17 revenue and earnings jumped by 16.6% and 17.9% respectively from the previous year mainly aided by opening of large number of new outlets in FY17. During the period, the Group has added 13 new stores of which 7 were the Brands Outlet (BO) while another 5 were Padini Concept Stores (PCS) and one free standing store. Approximately 2.9% of total revenue was contributed by opening of the thirteen new stores during Nov 2016 till Feb 2017. In addition, the resilient performance was also backed by strong growth from its existing stores.
   
• Softer quarterly growth. The Group’s 3QFY17 net profit and revenue down q-o-q, mainly due to absence of big festive season as Chinese New Year celebration fell in Jan’17 and consumer had made a purchase earlier in 2QFY17 together with the Christmas celebration instead of spending in this quarter as usual.
   
• Meanwhile, the Group’s net profit margin narrowed slightly by 0.9pts y-o-y although revenue improved by 9.2% y-o-y. The slight drop was due to lower gross profit margin and rise in marketing staff cost.

• Steady growth expected in next quarter. Looking forward, we expect the Group’s coming quarter results to be resilient which is underpinned by festive seasons particularly on Hari Raya Celebration which fall in June’17. In addition, we reckon the revenue will be boosted by `Padini 4 day’s special sale’ from 28 Apr 2017 till 1May 2017.The Group is confident in chalking up another profitable financial year as the 9 months 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 4th interim dividend of 2.5 sen and a special dividend of 1.5 sen which will go ex on 13th June 2017.

Earnings Outlook/Revision

• We revise upward our earnings forecast for FY17F and FY18F by 6.9% and 7.1% respectively to account for the better-than-expected results reported on 9MFY17.

Valuation & Recommendation

• Maintain BUY with a higher target price of RM3.64 (previous target price: RM3.09) as we roll over our valuation to FY18F with our adjusted earnings forecast. We pegged the stock valuation at 14x FY2018F EPS which is +2 standard deviation of its 3-year mean PE.

• We continue to like the Group’s strategy of taping into value-for-money products and their marketing strategy and initiatives which we believe could spur the Group’s earnings. Also, we believe that the gradual recovery in consumer spending will contribute to the Group’s topline and bottomline moving forward.

Source: JF Apex Securities Research - 31 May 2017