Result

• Padini reported a net profit of RM54.4m for its 4QFY19. The quarterly net profit increased 57.1% qoq but dropped 4.8% yoy. Meanwhile, the quarterly revenue stood at RM516.5m, increasing 8.9% qoq and 8.1% yoy.

• For 12MFY19, the Group achieved a lower bottom line of RM160.2m, tumbled 10.1% against a year ago despite stronger topline of +5.2%.

• Above expectations. The Group’s 12MFY19 net profit is above our and consensus expectation, reaching 108.8%/107% of full year net profit estimates, mainly due to lower inventories written off in current quarter.

Comment

• Stronger qoq earnings. As expected, higher revenue was registered supported by Hari Raya Festive season (+8.9% qoq). Besides, PBT/PBT margin was up 55.8%/4.3ppts, mainly due to bonus and incentive payout in 3QFY19.

• Lower yoy earnings. As compared to 4QFY18, revenue increased +8.1% yoy, contributed by better sales in existing stores (i.e. +6% vs. 4QFY18). However, lower PBT was recorded as a result of reversal of inventories written off and inventories written down in 4QFY18. As such, lower earnings were recorded in 4QFY19, -4.8% yoy.

• Lackluster 12MFY19 performance. Year to date, the Group revenue improved 6.2% yoy, again, supported by same stores sales growth of 4%. Likewise, higher reversal of inventories written off and inventories written down in FY18, which resulted in a lower PBT/PBT margin of - 8.5%/-2ppts in FY19.

• Dividend declared. The Group declared a first interim dividend of 2.5sen/share in respect of FY20, representing 22% of our full year FY20F dividend forecast. We expect similar dividend payment for the coming quarters, translating into dividend yield of 3.4% for FY20F.

• Neutral Outlook. Looking forward, we expect the Group to record a lower revenue in the coming quarters of FY20F due to seasonal effect. Meanwhile, we expect a slightly lower PBT margin for the 1QFY20 as compared to 4QFY19 (i.e. 12% to 14%) due to higher inventory write off as a result of lower 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 forecasts for FY20F. Meanwhile, we introduce our FY21F net earnings of RM170.3m. Our FY20F and FY21F net profit estimates represent growths of +3.3% and +2.8% respectively.

Valuation & Recommendation

• Maintain HOLD with a lower target price of RM3.70 (previously RM3.90), pegged at a lower P/E of 14.7x (previously 15.4x) FY20F EPS. Our valuation is at +0.5SD of its 3-year historical mean P/E due to lack of catalyst to drive the share price in near term as the overseas expansion in Cambodia has yet to render any significant earnings to the Group whilst local operation facing saturated growth. 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 - 28 Aug 2019