Result

• Padini reported a net profit of RM39.5mil for its 4QFY17. The quarterly net profit expanded 13.4% qoq and 4.7% yoy. Similarly, revenue increased by 23.2% qoq and 32% yoy.

• For FY17, the net profit of RM157.4mil was 14.6% higher than a year ago on the back of higher revenue, +20.7% yoy.

• Earnings within expectation. The Group’s full year earnings were within expectation by reaching 101.5%% and 100.3% of our and market consensus full year earnings forecast respectively. This was buoyed by the positive growth from the existing stores as well as 14 new stores being opened during the 12-month period.

Comment

• A strong year. The group’s topline and bottomline for full year FY17 recorded a double-digit growths as compared to FY16. The expansion plans by the group with 14 new outlets being opened during the FY17 translated into an impressive result. Since 1QFY16, Brands Outlet (BO) and Padini Concept Stores (PCS) were the core earnings contributors to the group. In spite of weak consumer sentiment coupled with subdued retail environment, Padini managed to attract consumers to shop in its outlets through its aggressive promotions such as 4-day special sales. In addition, the existing outlets continued to perform well in FY17 with 8% same store sales growth. However, gross profit margin compressed by 2.31ppts. This was due to an increase of RM22 million on inventories losses, inventory written off and inventory written down as compared to FY16. Furthermore, the Group’s strategy to maintain retail prices despite rising costs also compounded the margin erosions.

• Impressive earnings qoq….. In 4QFY17, the group also recorded an encouraging performance for both topline and bottomline as compared to last quarter. This was mainly contributed by Hari Raya festival sales which fell in June 2017 and 4-day special sales promotion held during the quarter.

• ……as well as yoy. In a same vein, the higher topline and bottomline reported in this quarter against 4QFY16 also backed by positive sales growth from the existing and current stores.

• Positive outlook. The group will continue to drive its earnings via new stores openings in FY18 to expand further its brands. The Group plans to open three to five Padini Concept Store through its overseas expansion. Moreover, we are sanguine on the Group’s strategy to mitigate the rising cost of sales.
   
• Dividend declared. The Group has declared a first interim dividend of 2.5sen per share, which will go ex on 13 September 2017 in respect of the financial year ending 30 June 2018 (FY18).

Earnings Outlook/Revision

• No change to our earnings forecast for FY18 (+8.5% yoy).

• We also take this opportunity to introduce our earnings forecast for FY19F, which implies a net profit growth of 15% on the assumptions of new stores openings and strong recovery of consumer sentiment.

Valuation & Recommendation

• Maintain BUY with a higher target price of RM4.62 (previous target price: RM3.64) as the share price surged strongly and overshot our previous target price. Our revised target price is now pegged at 15.5x FY19F EPS, which is +2 standard deviation above its mean PER. We continue to favour the group for its commendable same store sales growth which is unfazed by the prevailing subdued consumer sentiment coupled with its effective cost rationalisation.

Source: JF Apex Securities Research - 28 Aug 2017