Padini's 1HFY13 results were below consensus and our estimates. Earnings  were  lower  y-o-y  due  to  higher  expenses,  greater  demand  for  discounted  items  -  which dragged  down  profits  -  and  the  late  Chinese  New  Year  this  year.  With  another  two sen interim dividend declared this quarter, the company is likely to dish out an eight-sen  dividend  for  the  fullyear.  We  are  revising  its  FV  to  RM2.00  as  we  trim  our numbers to factor in narrower margins. Maintain BUY.

Missing estimates. Padini's revenue rose 7.4% y-o-y, boosted by its existing and opening of  new  stores,  which  saw  its  retail  space  expanding  17.7%  y-o-y.  Earnings,  however, slipped    19.1%  y-o-y  mainly  due  to:  i)  higher  operating  expenses  arising  from  the investment  in  new  outlets,  ii)  a  shift  in  consumer  preference  to  value-for-money  or discounted items, and iii)  the late Lunar New Year in 2013. Compared to last quarter, this quarter's sales were higher by 3.3% q-o-q, thanks to the Christmas season while net profit declined by 23.9% q-o-q, primarily due to the paying out of part of Padini's staff's bonuses in early 2013.

Margin  slips.  The  company's  gross  profit  margin  shrank  46%  from  49%  y-o-y,  as customers  showed  their  preference  for  more  affordable  merchandise  for  which  the  price mark-up was narrower. This led to EBIT margin dropping to 15.4% from 20.2% y-o-y amid increasing expenses.
  
To  pay  the  usual  2  sen  dividend.  The  company  has proposed  a third  interim single-tier dividend of two sen for the current quarter, bringing its YTD DPS to six sen per share. We believe Padini's management is on track to achieve our eight sen per  share DPS forecast for FY13, which will deliver a decent dividend yield of 4.4% to its shareholders.

Maintain  BUY.  We  are  lowering  our  FY13  and  FY14  forecasts  by  5.9%  and  5.8% respectively  to  reflect  the  thinner  margins.  Maintain  BUY,  but  with  a  new  FV  of  RM2.00, based  on  14x  FY13  EPS.  In  view  of  its  strong  fundamentals  and  decent  dividend  yield, Padini is still a safe bet, especially amid market uncertainty.

Source: OSK