Period  4Q13/FY13

Actual vs. Expectations  The 4Q13 net profit (NP) of RM15.7m brought the full year NP to RM85.4m. This is in line with expectations, having accounted for 101% of our full year estimates and 97% of the consensus.

Dividends  A single tier dividend of 2.5 sen was declared, as expected.

Key Result Highlights  QoQ, revenue declined 13.2%, mainly due to the absence of any major festivities during the quarter (note that the fourth quarter is seasonally weaker, and had accounted for 20.7%-23.7% of full year revenue over the past 5 years).

 Meanwhile, net profit slid by 38.0%, which is attributed to: (i) the reduction in revenues, (ii) a 3.8 ppt (from 49.1% in 3Q13 to 45.3% in 4Q13) contraction in gross margins, which reflects the increased promotional activities typical of the fourth quarter; and (iii) provision for restoration costs.

 YoY, revenue increased by 4.4%, mainly driven by the full contribution from the Brands Outlet and Padini Concept stores, which opened in 4Q12. However, this also resulted in higher operating expenses associated with increased retail floor space. Coupled with c.RM1.3m in provisions for restoration costs, Padini's 4Q13 net profit ended almost flat (+1.1%) on a YoY basis.

 While Padini's FY13 revenue grew by 8.8% on a YTD basis, net profit had instead declined by 10.4% due to the above-mentioned reasons. Gross margins were lower in FY13 (46.7% compared to 48.4% in FY12). and to make things worse, operating expenses were higher due to the bumper year back in FY12 where Padini added almost 130k sq ft of retail floor space to 700k sq ft.

Outlook  As we look towards FY14, Padini is poised to resume opening new stores after a year-long hiatus. In fact, the Group had recently set up a Brands Outlet (“BO”) and Padini Concept (“PC”) store in Gurney Paragon in July (1Q14).

 Going forward, the Group has further plans to open another 5 outlets in Nov/Dec (2Q14), namely a BO each in Miri and Langkawi as well as a PC in Seremban.

 Collectively, this would add more than 90k sq ft of retail floor space, raising the total space to 811k sq ft, which would put the Group on an expansion track not seen since FY12.

Change to Forecasts   No changes to our FY14-15E earnings forecasts of RM93.3m-RM99.0m.

Rating    Maintain MARKET PERFORM

Valuation  We maintain our TP of RM1.70 based on an unchanged fwd. PER of 12x over FY14E EPS of 14.2 sen.

Risks  The potential implementation of the GST and subsidy rationalization program by the government could potentially hamper consumer spending

Source: Kenanga