3Q15/9M15
9M15 PAT of RM62m (-20% YoY) was within our expectation but missed consensus, representing 85% and 76% of respective full-year forecasts.
Essentially, we expect 4Q15 to be weak in conjunction with GST implementation.
As expected, a 4th interim dividend of 2.5 sen was declared, bringing its YTD payout to 10.0 sen (vs. 9M14: 11.5 sen).
9M15 vs. 9M14, YoY
9M15 earnings fell 20% due to aggressive promotional and discounting activities. However, this was mitigated by top-line growth of 13%, thanks to new stores opening.
Profit margins shrunk by 3-4ppts.
All business segments showed weaknesses (see pg 2). 3M15 vs. 3M14, YoY
Stronger revenue growth (+30%) translated to higher earnings trajectory (+26%); this was backed by new stores opening and extended CNY shopping season. 3Q15 vs. 2Q15, QoQ
Given the same reasons above, top- and bottom-line growth accelerated by 16% and 64%, respectively.
Profit margins expanded by 3-4ppts, primarily due to sales transacted largely at regular prices. Recall, there were massive discounting activities back in 2Q15.
Over the short-term, we opine that costs will continue to stay at escalated levels due to the gestation phase of new stores opening this year (6 Padini Concept Store & 6 Brands Outlet).
Furthermore, GST implementation is expected to dampen consumer sentiment and haul down discretionary spending for the next 2-3 quarters.
That said, over the longer term, when macroeconomic headwinds simmer down, the company is well positioned to ride on the up-wave, having already established its store presence.
No changes were made to our forecasts.
Maintain OUTPERFORM
We opine that most of the negatives discussed above are already reflected in its current share price.
Our TP of RM1.64, which is based on an unchanged 12x FY16E PE (+0.5SD above its 5-year mean) is kept.
In addition, its superior yield offering of 7-8% is attractive in our view. We believe this payout is sustainable given its sturdy balance sheet, which has a net cash pile of RM164m (as at Mar-15) coupled with its strong operating cash flow generation.
Higher cost of living, which could stall consumer spending.
Higher-than-expected opex, incurred from the opening of new stores.
Source: Kenanga Research - 20 May 2015
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