Period  1Q14

Actual vs. Expectations The 1Q14 net profit (NP) of RM27.7m is in line with expectations, accounting for 28.9% and 29.7% of the consensus and our FY14 full year estimates, respectively.

 The first quarter of the financial year is seasonally the strongest, averaging at 29.7% of full year earnings over the past five years.

Dividends  A second interim dividend of 2.5 sen and a special dividend of 1.5 sen was declared.

Key Result Highlights YoY, 1Q14 revenue increased to RM217.2m (+8.0%) due to an increase in exports as well as on the strong performance achieved by the Group's Brand Outlet stores. Coupled with a 0.4ppt improvement in gross margins and lower interest expenses, PADINI's NP improved to RM27.7m (+9.6%).

 QoQ, revenue increased by 22.7% as PADINI benefited from: (i) seasonal factors such as the Hari Raya and Merdeka Day promotions and (ii) improvement in revenues across all sectors, with the exception of the Padini label. Furthermore, gross margin also expanded by 1.8% QoQ (from 45.3% to 47.1%) while the positive effect to NP was further compounded by a slight decrease in operating expenses. Even with a higher income tax expense of RM11.2 (compared to RM6.1m in 4Q13), PADINI managed to increase its NP by 77.1% QoQ.

Outlook  PADINI has resumed its new store openings after a year long hiatus. In fact, the Group opened a Padini Concept Store (PC) and a Brands Outlet (BO) store in Gurney Paragon, Penang in July (1Q14).

 Over the next two months, the Group plans to open another five outlets in 2Q14, namely a BO and PC each in Miri and Seremban, and another BO in Langkawi.

 Collectively, this would add more than 90k sq ft of retail floor space to a total of 811k sq ft, which would allow PADINI to better capitalize on the additional tourist arrivals projected in conjunction with the 2014 Visit Malaysia Year.

Change to Forecasts No changes to our FY14E and 15E earnings forecasts of RM93.3m and RM98.9m.

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 to Our Call The implementation of the GST and subsidy rationalization program by the government could potentially hurt consumer spending.

 Higher than expected operating expenses resulting from new store openings.

Source: Kenanga