Period

4Q15/FY15

Actual vs. Expectations

FY15 PAT of RM80m (-11% YoY) was slightly above our expectations by 3% of our and consensus full-year net profit forecasts.

Dividends

A first interim single tier DPS of 2.5 sen was declared.

Key Results Highlights

FY15 vs. FY14, YoY

FY15 earnings fell 11% to RM80.2m 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 3-5%pts. All business segments showed weaknesses (see pg 2). 4Q15 vs. 4Q14, YoY

Stronger revenue growth (+30%) translated into higher earnings trajectory (+26%); this was backed by new stores opening such as the 5 Brand Outlet Stores and 5 Padini Concept Stores that were opened after the end of the previous year’s corresponding quarter.

Note that despite the subdued retail sentiment following the imposition of the GST regime in 4Q15, the YoY improvement in the quarterly revenues indicated the positive impact of emphasis on delivering value and of expansion in the geographical spread of its distribution network.

Gross margins in 4Q15 fell by about 2% YoY. This was expected given that prices of products sold pre- and post-GST had remained the same though post-GST, and they had to deliver some 6% of the sales revenues to the tax authorities as GST deemed paid by the consumers.

Outlook

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.

Change to Forecasts

No changes were made to our forecasts.

Rating

Maintain OUTPERFORM

Valuation

We opine that most of the negatives discussed above could have reflected in its current share price.

We maintain our TP of RM1.64 based unchanged 12x FY16E PE (+0.5SD above its 5-year mean).

In addition, its superior yield offering of 7-8% is attractive in our view.

Risks to Our Call

Higher cost of living, which could stall consumer spending and Higher-than-expected opex, incurred from the opening of new stores.

Source: Kenanga Research - 19 Aug 2015