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.
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