Result

• Padini reported a net profit of RM34.7m for its 3QFY19. The quarterly net profit decreased by 34.7% QoQ and 12.9% YoY. Meanwhile, the Group’s revenue increased by 2.5% QoQ and 11.5% YoY.

• For 9MFY19, the Group achieved a lower bottom line of RM105.8m, tumbling 12.5% against a year ago despite stronger topline of +5.5%.

• Within expectations. The Group’s 9MFY19 net profit is within our and consensus expectation, reaching 71-72% of full year net profit estimates.

Comment

• Weaker QoQ earnings dragged by lower margin. The Group recorded a lower PBT/PBT margin, -34.8%/-5.7ppts as a result of bonus payout in current quarter, higher depreciation of Property, Plant and Equipment (PPE), and higher inventory losses which offset higher revenue.

• Sluggish YoY earnings, again due to disappointing margin. As compared to 3QFY18, the Group’s revenue increased by 15%, contributed by 4 new stores which were opened in 4QFY18. However, a lower PBT was recorded mainly due to reversal of inventories write off in 3QFY18.

• Weaker 9MFY19 earnings, no thanks to lackluster margin. The Group recorded a lower PBT/ PBT margin, - 8.2%/-1.7ppts mainly due to higher inventories write down amid higher topline.

• Dividend declared. The Group declared a 4th dividend of 2.5sen/share along with a special dividend of 1.5sen/share, resulting a total dividend declared of 4.0sen/share.

• Neutral Outlook. Looking forward, we expect the Group continues to achieve a better revenue in coming quarters supported by Hari Raya Festive season. Meanwhile, we expect a similar PBT margin for the 4QFY19F as compared to 3QFY19 (ie. 10% to 12%) due to lower inventory write off as a result of higher inventory turnover days.

• Risks include: (a) Higher-than-expected write off of inventories, (b) Lack of growth prospects and (c) Strengthening of Chinese Renminbi against Ringgit Malaysia.

Earnings Outlook/Revision

• No change to our earnings forecast for FY19F and FY20F, as we factored in a slightly better PBT margin for FY20F in view of sizeable inventory write off in this year,

FY19F. Our FY19F and FY20F net profit estimates represent growths of -17.6% and +13.2% respectively.

Valuation & Recommendation

• Downgrade from BUY to HOLD with an unchanged target price of RM3.90 following the recent rally of the share price, unattractive dividend yield and lack of catalyst to drive the share price in the near term. Our target price is now pegged at PE of 15.42x FY20F EPS of 25.3 sen (+0.5 SD above mean).

• Hit a growth plateau. We believe the Group hit its growth plateau and the overseas expansion in Cambodia has yet to render any significant earnings to the Group. Fundamentally, we like the Group for its strong brand name among Malaysian households and trendy yet value for-money products offerings.

Source: JF Apex Securities Research - 29 May 2019